576 Phil. 110
Before this Court is a Petition for Review
on
Certiorari[1] under Rule 45 of the Rules of Civil Procedure
seeking the reversal of the Court of Appeals (CA) Decision
[2] dated April 30, 1999
which affirmed the Decision
[3] of the Court of Tax Appeals (CTA) dated June
17, 1997.
[4]
The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a
petition for the probate of his will
[5] was filed with Branch 51 of the Regional Trial
Court (RTC) of Manila (probate court).
[6] The probate court then
appointed retired Supreme Court Justice Arsenio P. Dizon (Justice
Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as
Special and Assistant Special Administrator, respectively, of the
Estate of Jose (Estate). In a letter
[7] dated October 13, 1988, Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue
(BIR) of the special proceedings for the Estate.
Petitioner alleged that several requests for extension of the period to
file the required estate tax return were granted by the BIR since the
assets of the estate, as well as the claims against it, had yet to be
collated, determined and identified. Thus, in a letter
[8] dated March 14, 1990,
Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to
sign and file on behalf of the Estate the required estate tax return
and to represent the same in securing a Certificate of Tax Clearance.
Eventually, on April 17, 1990, Atty. Gonzales wrote a letter
[9] addressed to the BIR
Regional Director for San Pablo City and filed the estate tax
return
[10] with
the same BIR Regional Office, showing therein a NIL estate tax
liability, computed as follows:
COMPUTATION OF TAX
|
|
|
Conjugal Real Property (Sch. 1) | P10,855,020.00 |
Conjugal Personal Property (Sch.2) | 3,460,591.34 |
Taxable Transfer (Sch. 3) |
|
Gross Conjugal Estate | 14,315,611.34 |
Less: Deductions (Sch. 4) | 187,822,576.06 |
Net Conjugal Estate | NIL |
Less: Share of Surviving Spouse | NIL. |
Net Share in Conjugal Estate | NIL |
x x x |
|
Net Taxable Estate | NIL.
|
Estate Tax Due | NIL.[11] |
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G.
Umali issued Certification Nos. 2052
[12] and
2053
[13] stating that the taxes
due on the transfer of real and personal
properties
[14] of Jose had been fully
paid and said properties may be transferred to his heirs. Sometime in
August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the
probate court appointed petitioner as the administrator of the
Estate.
[15]
Petitioner requested the probate court's authority to sell several
properties forming part of the Estate, for the purpose of paying its
creditors, namely: Equitable Banking Corporation (P19,756,428.31),
Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31,
1988), Manila Banking Corporation (P84,199,160.46 as of February 28,
1989) and State Investment House, Inc. (P6,280,006.21). Petitioner
manifested that Manila Bank, a major creditor of the Estate was not
included, as it did not file a claim with the probate court since it
had security over several real estate properties forming part of the
Estate.
[16]
However, on November 26, 1991, the Assistant Commissioner for
Collection of the BIR, Themistocles Montalban, issued Estate Tax
Assessment Notice No. FAS-E-87-91-003269,
[17] demanding the payment of P66,973,985.40 as
deficiency estate tax, itemized as follows:
Deficiency Estate Tax- 1987 |
|
|
Estate tax | P31,868,414.48 |
25% surcharge- late filing | 7,967,103.62 |
late payment | 7,967,103.62 |
Interest | 19,121,048.68 |
Compromise-non filing | 25,000.00 |
non payment | 25,000.00 |
no notice of death | 15.00 |
no CPA Certificate | 300.00
|
|
|
Total amount due & collectible | P66,973,985.40[18] |
In his letter
[19]
dated December 12, 1991, Atty. Gonzales moved for the reconsideration
of the said estate tax assessment. However, in her letter
[20] dated April 12,
1994, the BIR Commissioner denied the request and reiterated that the
estate is liable for the payment of P66,973,985.40 as deficiency estate
tax. On May 3, 1994, petitioner received the letter of denial. On June
2, 1994, petitioner filed a petition for review
[21] before respondent CTA. Trial on
the merits ensued.
As found by the CTA, the respective parties presented the following pieces of evidence, to wit:
In the hearings conducted, petitioner did not present testimonial
evidence but merely documentary evidence consisting of the following:
| Nature of Document (sic) | Exhibits
|
1. | Letter dated October 13, 1988 from Arsenio P. Dizon addressed to the Commissioner of Internal Revenue informing the latter of the special proceedings for the settlement of the estate (p. 126, BIR records); | "A" |
|
|
|
2. | Petition for the probate of the will and issuance of letter of administration filed with the Regional Trial Court (RTC) of Manila, docketed as Sp. Proc. No. 87-42980 (pp. 107-108, BIR records); | "B" & "B-1" |
|
|
|
3. | Pleading entitled "Compliance" filed with the probate Court submitting the final inventory of all the properties of the deceased (p. 106, BIR records); | "C" |
|
|
4. | Attachment to Exh. "C" which is the detailed and complete listing of the properties of the deceased (pp. 89-105, BIR rec.); | "C-1" to "C-17" |
|
|
|
5. | Claims against the estate filed by Equitable Banking Corp. with the probate Court in the amount of P19,756,428.31 as of March 31, 1988, together with the Annexes to the claim (pp. 64-88, BIR records); | "D" to "D-24" |
|
|
|
6.
| Claim filed by Banque de L' Indochine et de Suez with the probate Court in the amount of US $4,828,905.90 as of January 31, 1988 (pp. 262-265, BIR records); | "E" to "E-3" |
|
|
|
7. | Claim of the Manila Banking Corporation (MBC) which as of November 7, 1987 amounts to P65,158,023.54, but recomputed as of February 28, 1989 at a total amount of P84,199,160.46; together with the demand letter from MBC's lawyer (pp. 194-197, BIR records); | "F" to "F-3" |
|
|
|
8. | Demand letter of Manila Banking Corporation prepared by Asedillo, Ramos and Associates Law Offices addressed to Fernandez Hermanos, Inc., represented by Jose P. Fernandez, as mortgagors, in the total amount of P240,479,693.17 as of February 28, 1989 (pp. 186-187, BIR records); | "G" & "G-1" |
|
|
|
9. | Claim of State Investment House, Inc. filed with the RTC, Branch VII of Manila, docketed as Civil Case No. 86-38599 entitled "State Investment House, Inc., Plaintiff, versus Maritime Company Overseas, Inc. and/or Jose P. Fernandez, Defendants," (pp. 200-215, BIR records); | "H" to "H-16" |
|
|
|
10. | Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus M. Gonzales, (p. 184, BIR records); | "I" |
|
|
|
11. | Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional Director of BIR in San Pablo City (p. 183, BIR records); | "J" |
|
|
|
12. | Estate Tax Return filed by the estate of the late Jose P. Fernandez through its authorized representative, Atty. Jesus M. Gonzales, for Arsenio P. Dizon, with attachments (pp. 177-182, BIR records); | "K" to "K-5" |
|
|
|
13. | Certified true copy of the Letter of Administration issued by RTC Manila, Branch 51, in Sp. Proc. No. 87-42980 appointing Atty. Rafael S. Dizon as Judicial Administrator of the estate of Jose P. Fernandez; (p. 102, CTA records) and | "L" |
|
|
|
14. | Certification of Payment of estate taxes Nos. 2052 and 2053, both dated April 27, 1990, issued by the Office of the Regional Director, Revenue Region No. 4-C, San Pablo City, with attachments (pp. 103-104, CTA records.). | "M" to "M-5" |
Respondent's [BIR] counsel presented on June 26, 1995 one
witness in the person of Alberto Enriquez, who was one of the revenue
examiners who conducted the investigation on the estate tax case of the
late Jose P. Fernandez. In the course of the direct examination of the
witness, he identified the following:
| Documents/Signatures | BIR Record
|
|
|
|
1. | Estate Tax Return prepared by the BIR; | p. 138 |
|
|
|
2. | Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. appearing at the lower Portion of Exh. "1"; | -do- |
|
|
|
3. | Memorandum for the Commissioner, dated July 19, 1991, prepared by revenue examiners, Ma. Anabella A. Abuloc, Alberto S. Enriquez and Raymund S. Gallardo; Reviewed by Maximino V. Tagle | pp. 143-144 |
|
|
|
4. | Signature of Alberto S. Enriquez appearing at the lower portion on p. 2 of Exh. "2"; | -do- |
|
|
|
5. | Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of Exh. "2"; | -do- |
|
|
|
6. | Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of Exh. "2"; | -do- |
|
|
|
7. | Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2"; | -do- |
|
|
|
8. | Summary of revenue Enforcement Officers Audit Report, dated July 19, 1991; | p. 139 |
|
|
|
9. | Signature of Alberto Enriquez at the lower portion of Exh. "3"; | -do- |
|
|
|
10. | Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3"; | -do- |
|
|
|
11. | Signature of Raymond S. Gallardo at the lower portion of Exh. "3"; | -do- |
|
|
|
12. | Signature of Maximino V. Tagle at the lower portion of Exh. "3"; | -do- |
|
|
|
13. | Demand letter (FAS-E-87-91-00), signed by the Asst. Commissioner for Collection for the Commissioner of Internal Revenue, demanding payment of the amount of P66,973,985.40; and | p. 169 |
|
|
|
14. | Assessment Notice FAS-E-87-91-00 | pp. 169-170[22] |
The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing
this Court's ruling in
Vda. de Oñate v. Court of
Appeals,
[23] the CTA opined that the aforementioned pieces
of evidence introduced by the BIR were admissible in evidence. The CTA
ratiocinated:
Although the above-mentioned documents were not formally offered as
evidence for respondent, considering that respondent has been declared
to have waived the presentation thereof during the hearing on March 20,
1996, still they could be considered as evidence for respondent since
they were properly identified during the presentation of respondent's
witness, whose testimony was duly recorded as part of the records of
this case. Besides, the documents marked as respondent's exhibits
formed part of the BIR records of the case.[24]
Nevertheless, the CTA did not fully adopt the assessment made by the
BIR and it came up with its own computation of the deficiency estate
tax, to wit:
Conjugal Real Property | P 5,062,016.00 |
Conjugal Personal Prop. | 33,021,999.93 |
Gross Conjugal Estate | 38,084,015.93 |
Less: Deductions | 26,250,000.00 |
Net Conjugal Estate | P 11,834,015.93 |
Less: Share of Surviving Spouse | 5,917,007.96 |
Net Share in Conjugal Estate | P 5,917,007.96 |
Add: Capital/Paraphernal |
|
Properties - P44,652,813.66 |
|
Less: Capital/Paraphernal |
|
Deductions | 44,652,813.66 |
Net Taxable Estate | P 50,569,821.62 |
Estate Tax Due P 29,935,342.97 |
|
Add: 25% Surcharge for Late Filing | 7,483,835.74 |
Add: Penalties for-No notice of death | 15.00 |
No CPA certificate | 300.00 |
Total deficiency estate tax | P 37,419,493.71 |
exclusive of 20% interest from due date of its payment until full payment thereof [Sec. 283 (b), Tax Code of 1987].[25]
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court
finds the petition unmeritorious and denies the same. Petitioner and/or
the heirs of Jose P. Fernandez are hereby ordered to pay to respondent
the amount of P37,419,493.71 plus 20% interest from the due date of its
payment until full payment thereof as estate tax liability of the
estate of Jose P. Fernandez who died on November 7, 1987.
SO ORDERED.[26]
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition
for review.
[27]
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full
the CTA's findings, the CA ruled that the petitioner's act of filing an
estate tax return with the BIR and the issuance of BIR Certification
Nos. 2052 and 2053 did not deprive the BIR Commissioner of her
authority to re-examine or re-assess the said return filed on behalf of
the Estate.
[28]
On May 31, 1999, petitioner filed a Motion for Reconsideration
[29] which the CA denied
in its Resolution
[30] dated November 3, 1999.
Hence, the instant Petition raising the following issues:
- Whether or not the admission of evidence which were not formally
offered by the respondent BIR by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is contrary to the Rules of
Court and rulings of this Honorable Court;
- Whether or not the Court of Tax Appeals and the Court of Appeals
erred in recognizing/considering the estate tax return prepared and
filed by respondent BIR knowing that the probate court appointed
administrator of the estate of Jose P. Fernandez had previously filed
one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had been
issued in the estate's favor;
- Whether or not the Court of Tax Appeals and the Court of Appeals
erred in disallowing the valid and enforceable claims of creditors
against the estate, as lawful deductions despite clear and convincing
evidence thereof; and
- Whether or not the Court of Tax Appeals and the Court of Appeals
erred in validating erroneous double imputation of values on the very
same estate properties in the estate tax return it prepared and filed
which effectively bloated the estate's assets.[31]
The petitioner claims that in as much as the valid claims of creditors
against the Estate are in excess of the gross estate, no estate tax was
due; that the lack of a formal offer of evidence is fatal to BIR's
cause; that the doctrine laid down in
Vda. de Oñate
has already been abandoned in a long line of cases in which the Court
held that evidence not formally offered is without any weight or value;
that Section 34 of Rule 132 of the Rules on Evidence requiring a formal
offer of evidence is mandatory in character; that, while BIR's witness
Alberto Enriquez (Alberto) in his testimony before the CTA identified
the pieces of evidence aforementioned such that the same were marked,
BIR's failure to formally offer said pieces of evidence and depriving
petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming
arguendo
that the ruling in
Vda. de Oñate is still
applicable, BIR failed to comply with the doctrine's requisites because
the documents herein remained simply part of the BIR records and were
not duly incorporated in the court records; that the BIR failed to
consider that although the actual payments made to the Estate creditors
were lower than their respective claims, such were compromise
agreements reached long after the Estate's liability had been settled
by the filing of its estate tax return and the issuance of BIR
Certification Nos. 2052 and 2053; and that the reckoning date of the
claims against the Estate and the settlement of the estate tax due
should be at the time the estate tax return was filed by the judicial
administrator and the issuance of said BIR Certifications and not at
the time the aforementioned Compromise Agreements were entered into
with the Estate's creditors.
[32]
On the other hand, respondent counters that the documents, being part
of the records of the case and duly identified in a duly recorded
testimony are considered evidence even if the same were not formally
offered; that the filing of the estate tax return by the Estate and the
issuance of BIR Certification Nos. 2052 and 2053 did not deprive the
BIR of its authority to examine the return and assess the estate tax;
and that the factual findings of the CTA as affirmed by the CA may no
longer be reviewed by this Court via a petition for review.
[33]
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely
erred in allowing the admission of the pieces of evidence which were
not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the
CTA in the latter's determination of the deficiency estate tax imposed
against the Estate.
The Court's Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a
court of record. As cases filed before it are litigated
de
novo, party-litigants shall prove every minute aspect of
their cases. Indubitably, no evidentiary value can be given the pieces
of evidence submitted by the BIR, as the rules on documentary evidence
require that these documents must be formally offered before the
CTA.
[34]
Pertinent
is Section 34, Rule 132 of the Revised
Rules on Evidence which reads:
SEC. 34. Offer of
evidence. -- The court shall consider no evidence which has
not been formally offered. The purpose for which the evidence is
offered must be specified.
The CTA and the CA rely solely on the case of
Vda. de
Oñate, which reiterated this Court's previous rulings in
People v. Napat-a[35] and
People v. Mate[36] on the admission and
consideration of exhibits which were not formally offered during the
trial. Although in a long line of cases many of which were decided
after
Vda. de Oñate, we held that
courts cannot consider evidence which has not been formally
offered,
[37]
nevertheless, petitioner cannot validly assume that the doctrine laid
down in
Vda. de Oñate has already been abandoned.
Recently, in
Ramos v. Dizon,
[38] this Court, applying the said
doctrine, ruled that the trial court judge therein committed no error
when he admitted and considered the respondents' exhibits in the
resolution of the case, notwithstanding the fact that the same were not formally offered. Likewise, in
Far East
Bank & Trust Company v. Commissioner of Internal
Revenue,
[39] the Court made reference to said doctrine in
resolving the issues therein. Indubitably, the doctrine laid down in
Vda. De Oñate still subsists in this jurisdiction.
In
Vda. de Oñate, we held that:
From the foregoing provision, it is clear that for evidence to be
considered, the same must be formally offered. Corollarily, the mere
fact that a particular document is identified and marked as an exhibit
does not mean that it has already been offered as part of the evidence
of a party. In Interpacific Transit, Inc. v. Aviles
[186 SCRA 385], we had the occasion to make a distinction between
identification of documentary evidence and its formal offer as an
exhibit. We said that the first is done in the course of the trial and
is accompanied by the marking of the evidence as an exhibit while the
second is done only when the party rests its case and not before. A
party, therefore, may opt to formally offer his evidence if he believes
that it will advance his cause or not to do so at all. In the event he
chooses to do the latter, the trial court is not authorized by the
Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing
People v. Mate [103 SCRA 484], we relaxed
the foregoing rule and allowed evidence not formally offered to be
admitted and considered by the trial court provided the following
requirements are present, viz.: first, the same must have been duly
identified by testimony duly recorded and, second, the same must have
been incorporated in the records of the case.[40]
From the foregoing declaration, however, it is clear that
Vda.
de Oñate is merely an exception to the general rule. Being an
exception, it may be applied only when there is strict compliance with
the requisites mentioned therein; otherwise, the general rule in
Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied.
The assailed pieces of evidence were presented and marked during the
trial particularly when Alberto took the witness stand. Alberto
identified these pieces of evidence in his direct testimony.
[41] He was also
subjected to cross-examination and re-cross examination by
petitioner.
[42]
But Alberto's account and the exchanges between Alberto and petitioner
did not sufficiently describe the contents of the said pieces of
evidence presented by the BIR. In fact, petitioner sought that the
lead examiner, one Ma. Anabella A. Abuloc, be summoned to testify,
inasmuch as Alberto was incompetent to answer questions relative to the
working papers.
[43] The lead examiner never testified. Moreover,
while Alberto's testimony identifying the BIR's evidence was duly
recorded, the BIR documents themselves were not incorporated in the
records of the case.
A common fact threads through
Vda. de Oñate and
Ramos that
does not exist at all
in the instant case. In the aforementioned cases, the exhibits were
marked at the pre-trial proceedings to warrant the pronouncement that
the same were duly incorporated in the records of the case. Thus, we
held in
Ramos:
In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked
during the pre-trial of the case thus, they have been incorporated into
the records. Further, Elpidio himself explained the contents
of these exhibits when he was interrogated by respondents' counsel...
x x x x
But what further defeats petitioner's cause on this issue is that
respondents' exhibits were marked and admitted during the pre-trial
stage as shown by the Pre-Trial Order quoted earlier.[44]
While the CTA is not governed strictly by technical rules of
evidence,
[45] as
rules of procedure are not ends in themselves and are primarily
intended as tools in the administration of justice, the presentation of
the BIR's evidence is not a mere procedural technicality which may be
disregarded considering that it is the only means by which the CTA may
ascertain and verify the truth of BIR's claims against the
Estate.
[46] The
BIR's failure to formally offer these pieces of evidence, despite CTA's
directives, is fatal to its cause.
[47] Such failure is aggravated by the fact that
not even a single reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to present its
evidence
[48] in
the hearing of February 21, 1996, but BIR's counsel failed to
appear.
[49] The
CTA denied petitioner's motion to consider BIR's presentation of
evidence as waived, with a warning to BIR that such presentation would
be considered waived if BIR's evidence would not be presented at the
next hearing. Again, in the hearing of March 20, 1996, BIR's counsel
failed to appear.
[50] Thus, in its Resolution
[51] dated March 21, 1996, the CTA
considered the BIR to have waived presentation of its evidence. In the
same Resolution, the parties were directed to file their respective
memorandum. Petitioner complied but BIR failed to do so.
[52] In all of these
proceedings, BIR was duly notified. Hence, in this case, we are
constrained to apply our ruling in
Heirs of Pedro Pasag v.
Parocha:[53]
A formal offer is necessary because judges are mandated to rest their
findings of facts and their judgment only and strictly upon the
evidence offered by the parties at the trial. Its function is to enable
the trial judge to know the purpose or purposes for which the proponent
is presenting the evidence. On the other hand, this allows opposing
parties to examine the evidence and object to its admissibility.
Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial
court.
Strict adherence to the said rule is not a trivial matter. The Court in
Constantino v. Court of Appeals ruled that
the formal offer of one's evidence is deemed waived after
failing to submit it within a considerable period of time. It explained
that the court cannot admit an offer of evidence made after a lapse of
three (3) months because to do so would "condone an
inexcusable laxity if not non-compliance with a court order which, in
effect, would encourage needless delays and derail the speedy
administration of justice."
Applying the aforementioned principle in this case, we find that the
trial court had reasonable ground to consider that petitioners had
waived their right to make a formal offer of documentary or object
evidence. Despite several extensions of time to make their formal
offer, petitioners failed to comply with their commitment and allowed
almost five months to lapse before finally submitting it.
Petitioners' failure to comply with the rule on admissibility
of evidence is anathema to the efficient, effective, and expeditious
dispensation of justice.
Having disposed of
the
foregoing procedural issue, we proceed to discuss the merits of the
case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to
the highest respect and will not be disturbed on appeal unless it is
shown that the lower courts committed gross error in the appreciation
of facts.
[54] In
this case, however, we find the decision of the CA affirming that of
the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors
have been condoned. As a mode of extinguishing an obligation,
[55] condonation or
remission of debt
[56] is defined as:
an act of liberality, by virtue of which, without receiving any
equivalent, the creditor renounces the enforcement of the obligation,
which is extinguished in its entirety or in that part or aspect of the
same to which the remission refers. It is an essential characteristic
of remission that it be gratuitous, that there is no equivalent
received for the benefit given; once such equivalent exists, the nature
of the act changes. It may become dation in payment when the creditor
receives a thing different from that stipulated; or novation, when the
object or principal conditions of the obligation should be changed; or
compromise, when the matter renounced is in litigation or dispute and
in exchange of some concession which the creditor receives.[57]
Verily, the second issue in this case involves the construction of
Section 79
[58] of
the National Internal Revenue Code
[59] (Tax Code) which provides for the allowable
deductions from the gross estate of the decedent. The specific question
is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the
fact that the said claims were reduced or condoned through compromise
agreements entered into by the Estate with its creditors.
"Claims against the estate," as allowable deductions from the gross
estate under Section 79 of the Tax Code, are basically a reproduction
of the deductions allowed under Section 89 (a) (1) (C) and (E) of
Commonwealth Act No. 466 (CA 466), otherwise known as the National
Internal Revenue Code of 1939, and which was the first codification of
Philippine tax laws. Philippine tax laws were, in turn, based on the
federal tax laws of the United States. Thus, pursuant to established
rules of statutory construction, the decisions of American courts
construing the federal tax code are entitled to great weight in the
interpretation of our own tax laws.
[60]
It is noteworthy that even in the United States, there is some dispute
as to whether the deductible amount for a claim against the estate is
fixed as of the decedent's death which is the general rule, or the same
should be adjusted to reflect post-death developments, such as where a
settlement between the parties results in the reduction of the amount
actually paid.
[61] On one hand, the U.S. court ruled that the
appropriate deduction is the "value" that the claim had at the date of
the decedent's death.
[62] Also, as held in
Propstra v.
U.S.,
[63] where a lien claimed against the estate was
certain and enforceable on the date of the decedent's death, the fact
that the claimant subsequently settled for lesser amount did not
preclude the estate from deducting the entire amount of the claim for
estate tax purposes. These pronouncements essentially confirm the
general principle that post-death developments are not material in
determining the amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that
post-death settlement should be taken into consideration and the claim
should be allowed as a deduction only to the extent of the amount
actually paid.
[64] Recognizing the dispute, the Service released
Proposed Regulations in 2007 mandating that the deduction would be
limited to the actual amount paid.
[65]
In announcing its agreement with
Propstra,
[66] the U.S.
5
th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision...in
Propstra correctly apply the Ithaca
Trust date-of-death valuation principle to enforceable claims
against the estate. As we interpret Ithaca Trust,
when the Supreme Court announced the date-of-death valuation principle,
it was making a judgment about the nature of the federal estate tax
specifically, that it is a tax imposed on the act of transferring
property by will or intestacy and, because the act on which the tax is
levied occurs at a discrete time, i.e., the instance
of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of that time. This analysis
supports broad application of the date-of-death valuation rule.[67]
We express our agreement with the date-of-death valuation rule, made
pursuant to the ruling of the U.S. Supreme Court in
Ithaca
Trust Co. v. United States.
[68] First. There is no law,
nor do we discern any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining
the net value of the estate. It bears emphasis that tax burdens are not
to be imposed, nor presumed to be imposed, beyond what the statute
expressly and clearly imports, tax statutes being construed
strictissimi juris against the government.
[69] Any doubt on whether
a person, article or activity is taxable is generally resolved against
taxation.
[70]
Second. Such construction finds relevance and
consistency in our Rules on Special Proceedings wherein the term
"claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in
his lifetime, or liability contracted by the deceased before his
death
.[71] Therefore, the claims existing at the time of
death are significant to, and should be made the basis of, the
determination of allowable deductions.
WHEREFORE, the instant Petition is
GRANTED. Accordingly, the assailed Decision dated
April 30, 1999 and the Resolution dated November 3, 1999 of the Court
of Appeals in CA-G.R. S.P. No. 46947 are
REVERSED
and
SET ASIDE. The Bureau of Internal
Revenue's deficiency estate tax assessment against the Estate of Jose
P. Fernandez is hereby
NULLIFIED. No costs.
SO ORDERED.
Ynares-Santiago, (Chairperson), Austria-Martinez, Chico-Nazario, and
Reyes, JJ., concur.
[1] Dated
January 20, 2000,
rollo, pp. 8-20.
[2] Particularly docketed as CA-G.R. SP No. 46947; penned by Associate
Justice Marina L. Buzon, with Presiding Justice Jesus M. Elbinias (now
retired) and Associate Justice Eugenio S. Labitoria (now retired),
concurring; id. at 22-31.
[3] Particularly docketed as CTA Case No. 5116; penned by Associate Judge
Ramon O. De Veyra and concurred in by Presiding Judge Ernesto D.
Acosta and Associate Judge Amancio Q. Saga; id. at 33-61.
[4] This case was decided before the CTA was elevated by law to the same
level as the CA by virtue of Republic Act (RA) No. 9282 otherwise known
as "
An Act Expanding the Jurisdiction of the Court of
Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate
Court with Special Jurisdiction and Enlarging its Membership, Amending
for the Purpose Certain Sections of Republic Act No. 1125, as amended,
otherwise known as The Law Creating the Court of Tax Appeals, and for
other purposes," which was approved on March 30,
2004. Hence, upon its effectivity, decisions of the CTA are now
appealable directly to the Supreme Court.
[5] BIR Records, pp. 1-88.
[6] The said petition is entitled: In the Matter of the Petition to Approve
the Will of Jose P. Fernandez, Carlos P. Fernandez, Petitioner,
particularly docketed as Special Proceedings No. 87-42980; BIR Record,
pp. 107-108.
[7] Id. at 126.
[8] Id. at 184.
[9] Id. at 183.
[10] Id. at 182.
[11] Id.
[12] Rollo, p. 68.
[13] Id. at 69.
[14] Lists of Personal and Real Properties of Jose; id. at 70-73.
[15] CTA Record, p. 102.
[16] Rollo, p. 10.
[17] BIR Records, p. 169.
[18] Id.
[19] Id. at 171.
[20] By then BIR Commissioner Liwayway Vinzons-Chato; id. at 277-278.
[21] CTA Records, pp. 1-7.
[22] Rollo, pp. 37-40 (Emphasis supplied).
[23] G.R. No. 116149, November 23, 1995, 250 SCRA 283, 287, citing
People v. Napat-a, 179 SCRA 403 (1989) and
People v. Mate, 103 SCRA 484 (1981).
[24] CTA Records, p. 148.
[25] Id. at 166-167.
[26] Id. at 167.
[27] CA
rollo, pp. 3-17.
[28] Citing Section 16 of the 1993 National Internal Revenue Code.
[29] Rollo, pp. 22-31.
[30] Id. at 32.
[31] Id. at 114-115.
[32] Id.
[33] Respondent BIR's Memorandum dated October 16, 2000; id. at 140-144.
[34] Commissioner of Internal
Revenue v. Manila Mining Corporation, G.R. No. 153204, August
31, 2005, 468 SCRA 571, 588-589.
[35] Supra note 23.
[36] Supra note 23.
[37] Far East Bank &
Trust Company v. Commissioner of Internal Revenue, G.R. No.
149589, September 15, 2006, 502 SCRA 87;
Ala-Martin v.
Sultan, G.R. No. 117512, October 2, 2001, 366 SCRA 316,
citing
Ong v. Court of Appeals, 301 SCRA 391 (1999),
which further cited
Candido v. Court of Appeals, 253
SCRA 78, 82-83 (1996);
Republic v. Sandiganbayan,
255 SCRA 438, 456 (1996);
People v. Peralta, 237
SCRA 218, 226 (1994);
Vda. De Alvarez vs. Court of
Appeals, 231 SCRA 309, 317-318 (1994); and
People v.
Cariño, et al., 165 SCRA 664, 671 (1988); See also
De los Reyes v. Intermediate Appellate Court, G.R.
No.74768, August 11, 1989, 176 SCRA 394, 401-402 (1989) and
People v. Mate, supra note 23, at 493.
[38] G.R. No. 137247, August 7, 2006, 498 SCRA 17, 30-31.
[39] Supra note 29, at 91.
[40] Underscoring supplied.
[41] TSN, June 26, 1995.
[42] TSN, July 12, 1995.
[43] Id. at 42-49.
[44] Supra note 29, at 31 and 34, citing
Marmont Resort Hotel
Enterprises v. Guiang, 168 SCRA 373, 379-380 (1988).
[45] Calamba Steel Center,
Inc. (formerly JS Steel Corporation) v. Commissioner of Internal
Revenue, G.R. No. 151857, April 28, 2005, 457 SCRA 482, 494.
[46] Commissioner of Internal
Revenue v. Manila Mining
Corporation, supra note 28, at 593-594.
[47] Far East Bank & Trust Company v.
Commissioner of Internal Revenue, supra note 29, at 90.
[48] CTA Resolution dated January 19, 1996; CTA Records, p. 113-114.
[49] CTA Records, p. 117.
[50] Id. at 119.
[51] Id. at 120.
[52] CTA Order dated June 17, 1996, CTA Records, p. 138.
[53] G.R. No. 155483, April 27, 2007, 522 SCRA 410, 416, citing
Constantino v. Court of Appeals, G.R. No. 116018,
November 13, 1996, 264 SCRA 59 (Other citations omitted; Emphasis
supplied ).
[54] Filinvest Development
Corporation v. Commissioner of Internal Revenue and Court of Tax
Appeals, G.R. No. 146941, August 9, 2007, 529 SCRA 605,
609-610, citing
Carrara Marble Philippines, Inc. v.
Commissioner of Customs, 372 Phil. 322, 333-334 (1999) and
Commissioner of Internal Revenue v. Court of
Appeals, 358 Phil. 562, 584 (1998).
[55] Article 1231 of the Civil Code of the Philippines provides:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3)
By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation. (Emphasis ours.)
[56] Article 1270 of the Civil Code of the Philippines provides:
Art. 1270. Condonation or remission is essentially gratuitous, and
requires the acceptance by the obligor. It may be made expressly or
impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore, comply
with the forms of donation.
[57] Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. IV, 1991 ed., p. 353, citing 8 Manresa 365.
[58] SEC. 79.
Computation of net estate and estate tax.
-- For the purpose of the tax imposed in this Chapter, the value of the
net estate shall be determined:
(a) In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate --
(1)
Expenses, losses, indebtedness, and taxes. -- Such amounts --
(A) For funeral expenses in an amount equal to five
per centum of the gross estate but in no case to exceed
P50,000.00;
(B) For judicial expenses of the testamentary or intestate proceedings;
(C) For claims against the estate;
Provided, That at the time the indebtedness was
incurred the debt instrument was duly notarized and, if the loan was
contracted within three years before the death of the decedent, the
administrator or executor shall submit a statement showing the
disposition of the proceeds of the loan. (As amended by PD No. 1994)
(D) For claims of the deceased against insolvent persons where
the value of decedent's interest therein is included in the value of
the gross estate; and
(E) For unpaid mortgages upon, or any indebtedness in respect
to property, where the value of decedent's interest therein,
undiminished by such mortgage or indebtedness, is included in the value
of the gross estate, but not including any income taxes upon income
received after the death of the decedent, or property taxes not accrued
before his death, or any estate tax. The deduction herein allowed in
the case of claims against the estate, unpaid mortgages, or any
indebtedness, shall when founded upon a promise or agreement, be
limited to the extent that they were contracted
bona fide
and for an adequate and full reconsideration in money or
money's worth. There shall also be deducted losses incurred during the
settlement of the estate arising from fires, storms, shipwreck, or
other casualties, or from robbery, theft, or embezzlement, when such
losses are not compensated for by insurance or otherwise, and if at the
time of the filing of the return such losses have not been claimed as a
deduction for income tax purposes in an income tax return, and provided
that such losses were incurred not later than last day for the payment
of the estate tax as prescribed in subsection (a) of Section 84.
[59] This refers to the 1977 National Internal Revenue Code, as amended
which was effective at the time of Jose's death on November 7, 1987.
[60] Commissioner of Internal
Revenue v. Court of Appeals, G.R. No. 123206, March 22, 2000,
328 SCRA 666, 676-677 (citations omitted).
[61] 47B
Corpus Juris Secundum, Internal Revenue § 533.
[62] Smith v.
C.I.R., 82 T.C.M. (CCH) 909 (2001), aff'd 54 Fed. Appx. 413.
[63] 680 F.2d 1248.
[64] 47B
Corpus Juris Secundum, Internal Revenue § 524.
[65] Prop. Treas. Reg. §. 20.2053-1 (b) (1), published as REG-143316-03.
[66] Supra note 63.
[67] `Smith's Est. v. CIR, 198 F3d 515, 525 (5th Cir. 1999). See also
O'Neal's Est. v. US, 228 F. Supp. 2d 1290 (ND Ala. 2002).
[68] 279 U.S. 151, 49 S. Ct. 291, 73 L.Ed. 647 (1929).
[69] Commissioner of Internal
Revenue v. The Court of Appeals, Central Vegetable Manufacturing Co.,
Inc., and the Court of Tax Appeals, G.R. No. 107135, February
23, 1999, 303 SCRA 508, 516-517, citing
Province of Bulacan v.
Court of Appeals, 299 SCRA 442 (1998);
Republic v.
IAC, 196 SCRA 335 (1991);
CIR v. Firemen's Fund Ins.
Co., 148 SCRA 315 (1987); and
CIR v. CA,
204 SCRA 182 (1991).
[70] Manila International
Airport Authority v. Court of Appeals, G.R. No. 155650,
July 20, 2006, 495 SCRA 591, 619.
[71] Quirino v.
Grospe, G.R. No. 58797, January 31, 1989, 169 SCRA 702,
704-705, citing
Gabin v. Melliza, 84 Phil. 794, 796
(1949).