Estate Tax Case Digests
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On March 10 and 12, 1925, Esperanza Tuazon donated several parcels of land located in Manila to plaintiffs Concepcion Vidal de Roces and her husband, as well as one Elvira Richards. This was recorded in the Registry of Deeds. After subsequently taking possession of the said lands and its fruits, plaintiffs obtained the corresponding transfer certificates. In 1926, the donor died without leaving any forced heir and designated the sum of P5,000 to each of her donees. After the estate had been distributed among the instituted legatees and before delivery of their respective share, the Commissioner of Internal Revenue (CIR) ruled that plaintiffs being donees and legatees should pay inheritance taxes. These were then paid under protest. Plaintiffs argue that donation inter vivos is not included in the Administrative Code and if it does, it is unconstitutional because it violates Section 3 of the Jones Law, the Legislature has no authority to impose inheritance tax on donations inter vivos, and that a legal provision of this character contravenes the fundamental rule of uniformity of taxation. Nonetheless, CIR contends that words ‘all gifts’ pertain plainly to donation inter vivos. Issue:
Whether or not the donations are subject to inheritance tax
The court held that the said donations are subject to inheritance tax because the phrase ‘all gifts’ as laid down in the case of Tuason v. Posadas refers to gifts inter vivos being considered as advances in anticipation of inheritance in such a way that it is considered as gifts inter vivos made in contemplation of death therefore there is no violation of any constitutional provision. Gifts inter vivos, the transmission of which is not made in contemplation of the donor’s death should not be understood as included within the said legal provision for the reason that it would amount to imposing a direct tax on property and not on the transmission thereof, which act does not come within the scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code which deals expressly with the tax on inheritances, legacies and other acquisitions mortis causa. Donations which are not made in contemplation of the decedent’s death are not included because it would mean imposing a direct tax on property and not on its transmission.
Dizon v. Posadas, 57 Phil. 465
Don Felix Dizon donated twenty-two tracts of land to Luis Dizon, his only son, by a deed of gift inter vivos. The same was duly accepted and registered before the death of the former. Included in the assessment of the inheritance tax against Luis was the gift made to him during the lifetime of his father. Luis asserts that the tax is illegal since he received the property by a deed of gift inter vivos duly accepted and registered before his father’s death/ Issue:
Whether or not the gift inter vivos is subject to inheritance tax Ruling:
Yes. The gift received by Luis was really considered advancement upon the inheritance to which he would be entitled upon the death of his father. Following the provisions of Sec. 1540 of the Administrative Code, Luis being a forced heir cannot be deprived of his share in the inheritance thus his argument that he is no longer an heir after the death of his father because there is no longer any property is deemed invalid and following previous rulings, when the law says all gifts, it undoubtedly refers to gifts inter vivos, and not mortis causa. De Guzman v. De Guzman, 83 SCRA 256
One of the properties left by the deceased testator 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. 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 claiming that the utilization of the income of the estate to defray those expenditures is not valid. Issue:
Whether or not expenses are necessary for the administration of the estate Ruling:
Yes. The expenses incurred were necessary for the preservation and use of the family residence. The co-owners, including appellants, were able to use the family home in comfort, convenience and security as a result of those expenses. In the case of Lizarraga Hermanos vs. Abada, administration expenses are held to 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. In the case at bar, the 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.
Vera vs Navarro, 79 SCRA 408
Elsie M. Gaches died on March 9, 1966 without a child but left a last will and testament in which the heirs are Pacito, Vicente, Crisanto, Camilio, Magdalena, Consuelo and her Sister Bess who inherits personal property located in the United States, Judge Tan was the appointed executor, and the attorney-in-fact is Atty. Delia P. Medina. On September 9, 1967, Atty. Medina filed with this a pleading stating that 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, respondents, 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.
Atty. Medina prayed in her offer of that she and Abanto and Eribal be authorized to make use of the funds of the estate, and to gradually dispose of and sell the shares of stock. The court authorized the herein respondents to withdraw funds of the estate. On November 23, 1967, the Solicitor General filed a manifestation expressing his conformity to the offer of compromise dated September 9, 1967 subject to certain conditions. Atty. Medina filed a petition to declare the Overseas Bank of Manila in contempt for allowing the renewal, without court authority, of the time deposit with the said bank for another year. 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. Commissioner, however, mentioned the respondents through their counsel that his Office 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. Issue:
Whether or not the assignment of a certificate of time deposit to the commissioner of Internal Revenue for the purpose of paying thereby the estate tax constitute payment of such tax
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 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. 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 should still be considered outstanding.
Lorenzo v. Posadas, 64 Phil. 353
On May 27 1922, Thomas Hanley died in Zamboanga, leaving a will and considerable amount of real and personal properties. On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for there fund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interest thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax was paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. However, Court of First Instance dismissed this counterclaim. It also denied Lorenzo’s claim for refund against Posadas. Hence, both appealed. Issue:
Whether or not the estate was delinquent in paying the inheritance tax Ruling:
Yes. Sec.1544 (b) of the Revised Administrative Code states that the payment of the inheritance tax shall be made before delivering to share to each beneficiary. The court ruled that the delivery made was delivery to beneficiary or the trustee notwithstanding the condition provided in the will that the property will only be given ten years after the death of Hanley.
Vera v. Fernandez, 89 SCRA 199
Jaime Araneta, Regional Director of Bureau of Internal Revenue filed a motion for allowance of claim against the estate of Luis D Tongoy. Such claim represents the indebtedness of the latter to the Government for deficiency income taxes amounting to P3,254.80. The administrator opposed the motion on the ground that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever, except that they may be set forth as counterclaims in any action that the executor or administrator may bring against the claimants. Issue:
Whether or not the laws of non-claims of the Rules of Court bar the claim of the government for unpaid taxes Ruling:
No. As held in the case of CIR vs. Pineda, 21 SCRA 105, Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government’s exception, as a general rule, from the operation of the principle of estoppel.
Commissioner of Internal Revenue v. Gonzales, 18 SCRA 757
Jose Yusay and Lilia Yusay Gonzales are the heirs of Matias Yusay with the former being appointed as the administrator. In 1929, Jose filed an estate and inheritance tax return where a tax audit was conducted by the Bureau of Internal Revenue (BIR) and an under-declaration in the return filed was subsequently found. However, a project of partition between the two heirs was submitted to the BIR which provides that the estate was to be divided as follows: one- third (1/3) for Gonzales and two – thirds (2/3) for Jose. The BIR then conducted another investigation and a similar result was found. Following these events, the Commissioner of Internal Revenue issued a final assessment notice against the entire estate. Now Lilia Yusay Gonzales questioned the validity of the said notice that was issued and contended that the issuance was way beyond the prescriptive period of 5 years (under the old tax code) because the return was already filed by Jose in 1949. She insisted that in the year 1958, the CIR’s right to make an assessment has already prescribed. Issue:
Whether or not the power to issue the assessment can be prescribed Ruling:
No. The court held that the power of assessment cannot be prescribed. The return filed by Jose was insufficient to commence the running of the prescriptive period. The tax code lists the requirements for the filing of returns among others the setting forth of the gross estate value. A return need not be complete in all particulars. It is sufficient if it complies with the law, there is substantial compliance when return is made in good faith; it covers the entire period involved and it contains information as to various items of income deduction and credit and with such definiteness as to permit the computation and assessment of the tax. The estate and inheritance tax return filed by Jose was substantially defective because it was incomplete such huge under-declaration could not be a result of oversight as he very well knew of the existence of the omitted properties. The return then is so deficient that it prevented the commissioner from computing the taxes due on the estate. It was as though no Return was made. The Commissioner had to determine and assess the taxes on the data obtained, not from the return but from the other sources. The court therefore holds the view that the return in question was no return at all as required in Section 93 of tax code.
Kapatiran vs. Tan, 163 SCRA 371
Executive Order No. 273 was issued by the President of the Philippines. This is the law on E-VAT which is a tax levied on a large amount of goods and services, added by the seller on the value, with aggregate gross annual sales of articles and/or services, exceeding P200,000, unless exempt to his purchase of goods and services. Such VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realizes. Kapatiran ng mga Naglilingkod sa Pamahalaang Pilipinas, Inc seeks to nullify Executive Order No. 273. The group claims that it is against the Constitution, oppressive, discriminatory and is violating the due process and equal protection law. Issue:
Whether or not Executive Order No. 273 is unconstitutional because the President had no authority to issue the same
NO. Under the Provisional and 1987 Constitution, the president is vested with legislative powers until a legislature under a new Constitution is convened. Thus, Executive Order No. 273 was not unconstitutional.
Tolentino et. al. vs. Secretary of Finance, 235 SCRA 630
Republic Act No. 7716 seeks to widen the tax base of the existing VAT system through amendments of the National Internal Revenue Code and thus, being questioned based on numerous grounds. Value-Added Tax is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Petitioner Philippine Press Institute appeals that R.A. No. 7716 is violating their press freedom and religious liberty by removing them from the exemption of VAT, while there are others not included in such removal. Moreover, the petitioner claims that VAT has the same nature as a license tax. Issue:
Whether or not the purpose of the VAT is the same as that of a license tax Ruling:
No. A license tax is mainly for regulation. Its imposition on the press lays a preceding restraint on the exercise of its right thus making it unconstitutional. On the other hand, Value-Added Tax is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. For the press to be subjected to such payment is to make them pay income tax or subject it to general regulation which is constitutional.
ABAKADA-GURO Party list vs. Ermita, 469 SCRA 9357
On May 27, 2005, ABAKADA GURO Party list filed a petition for prohibition, questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code. The provisions in question contain a uniform proviso authorizing the President upon recommendation from the Secretary of Finance to raise the VAT to 12% after the satisfaction certain conditions. Claiming that since there was no disagreement between House Bill No. 3705 and 3555, and Senate Bill No. 1950, with regard to their settlement that the VAT burden for the sale of service for power generation shall not be passed on to the end-consumer, ABAKADA-GURO party list, et. al. filed motions for reconsideration praying that the bicameral conference committee should not have acted on the no pass-on provision. Petitioners contend that the presence of no pass-on provision for the sale of petroleum products and the lack of the Senate bill means that there is no conflict. Citing Section 24 of Article VI of the Constitution, petitioners also argue that the same is violated by Republic Act No. 9337 when the Senate introduced amendments not connected with VAT. Moreover, said party insists that the increase of the VAT rate by the Executive constitutes undue delegation of legislative power.
Whether or not Republic Act No. 9337 or the VAT Reform Act is constitutional
YES. Article VI, Section 24 of the Constitution provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. The Secretary of Finance is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect. Also, considering that he possesses all the facilities to gather data and information and has a much broader perspective. Likewise, the assailed provisions of R.A. No. 9337 already involve legislative policy and wisdom. As long as the act is it within constitutional bounds and there is a public end, such end shall be accomplished by the legislature.
Atlas Consolidated Mining vs. CIR, 524 SCRA 73
Petitioner corporation, Atlas Consolidated Mining Corporation, is a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products which filed claims with the BIR for refund or credit of input VAT on its purchases on capital good and on its zero-rated sales in the taxable quarters of the years 1990 and 1992 but the latter did not immediately act on the matter prompting the petitioner to file a petition for review before the Court of Tax Appeals, who denied the claims because for zero-rating to apply, 70% of the company’s sales must consist of exports, which were not filed within the 2-year prescriptive period and failing to submit substantial evidence to support its claim for refund/credit.
The petitioner contends that CTA failed to consider the sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every end of the applicable quarters; and that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers’ invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims. Issue:
Whether or not the petitioner sufficiently established the factual bases for its applications for refund/credit of input VAT
No. Although the court agreed with the petitioner that the two-year prescriptive period for the filing of claims for refund/credit of input VAT, must be counted from the date of filing of the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as exports because these export processing zones are to be managed as a separate customs territory from the rest of the Philippines, and for tax purposes, are effectively considered as foreign territory, it denied the claims for refund of input VAT on its purchases of capital goods and effectively zero-rated sales during the period claimed for not being established and substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictly against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on unclear implications.
CIR vs. Philippine Long Distance Telephone Company, 478 SCRA 61 Facts:
Republic Act No. 7082 obliges the company to pay a franchise tax corresponding to 3% of all gross receipts of which shall be in lieu of all taxes on its franchise or earning thereof and exempts it from VAT on importations of equipment, machineries and spare parts necessary in the conduct of its business where as PLDT is a grantee thereof. PLDT filed to BIR a claim for tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying “in connection with its importation of various equipment, machineries and spare parts needed for its operations”. BIR did not acted upon such claim PLDT filed with the CTA a petition for review therein seeking a refund of or the issuance of a tax credit certificate.
Whether or not the petitioner is entitled to a tax refund for its transaction Ruling:
YES. The action of PLDT was proper under the supervision of Republic Act. No. 7082. Jurisprudence teaches that imparting the “in lieu of all taxes” clause a literal meaning, as did the Court of Appeals and the CTA before it, is fallacious. The court held that defendant PLDT was entitled for a tax refund with regard to its past transaction. The Commissioner of Internal Revenue was ordered to issue a Tax Credit Certificate for the defendant.
Fort Bonifacio Development Corporation vs. CIR, 583 SCRA 168 Facts:
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic corporation engaged in the development and sale of real property. The Bases Conversion Development Authority (BCDA), a wholly owned government corporation created under Republic Act (RA) No. 7227, owns 45% of petitioner’s issued and outstanding capital stock; while the Bonifacio Land Corporation, a consortium of private domestic corporations, owns the remaining 55%. By virtue of RA 7227 and Executive Order No. 40, FBDC bought from the national government a portion of the Fort Bonifacio reservation, now known as the Fort Bonifacio Global City (Global City). The amendment of certain provisions of the old National Internal Revenue Code (NIRC) by RA 7716 caused the extension of the VAT coverage to real properties held primarily for sale to customers or held for leas in the ordinary course of trade or business.
On January 1, 1996, RA 7716 restructured the Value-Added Tax (VAT) system by amending certain provisions of the old National Internal Revenue Code (NIRC). RA 7716 extended the coverage of VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business and the petitioner started selling Global City lots to interested buyers in October 1996. For the first quarter of 1997, petitioner generated a total amount of P 3,685,356,539.50 from its sales and lease of lots. Realizing that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997, petitioner on November 17, 1998 filed with the BIR a claim for refund of the amount of P 359,652,009.47 erroneously paid as output VAT for said period. Issues:
Whether or not the Petitioner is there is a valid implementation of Section 105 (Transitional Input Tax Credits) of the NIRC. Whether or not the Petitioner is entitled to the tax credit stipulated in Section 105 of the NIRC. Ruling:
The court confirms on both issues. The Petitioner is entitled to claim transitional input VAT based on the value of the entire real property. The modifications to the VAT law do not show any purpose to make those in the real estate business subject to a different management from those engaged in the sale of other goods or properties or in any other profitable trade or business. On the scope of the basis for defining the available transitional input VAT, the CIR has no power to limit the meaning and coverage of the term “goods” in Section 105 of the Tax Code without legislative authority or basis. The transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. SEC. 105 states that a person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.
CIR vs. Aichi Forging Company of Asia, 632 SCRA 422
Aichi Forging filed a claim for refund or credit of input VAT attributable to its zero-rated with the CIR through the DOF One-Stop Shop on September 30, 2004. On the same day, Aichi Forging filed a Petition for Review with the CTA for the same action. The BIR disputed the claim and supposed that the claim should have been filed on September 29, 2004 because the same was filed beyond the two-year period given that 2004 was a leap year. The CIR also raised issues related to the reckoning of the 2-year period and the simultaneous filing of the administrative and judicial claims. Issue:
Whether or not the petitioner is entitled to a tax refund even though the claim was filed out of time Ruling:
The claim was filed on time even if 2004 was a leap year since the sanctioned method of counting is the number of months.The court ruled that the right to claim the refund must be reckoned from the “close of the taxable quarter when the sales were made” – in this case September 30, 2004. However, Section 112 mandates that the taxpayer filing the refund must either wait for the decision of the CIR or the lapse of the 120-day period provided therein before filing its judicial claim. Failure to observe this rule is fatal to a claim. Thus, Section 112 (A) was interpreted to refer only to claims filed with the CIR and not appeals to the CTA given that the word used is “application”. Finally, the Court said that applying the 2-year period even to judicial claims would render nugatory Section 112 (D) which already provides for a specific period to appeal to the CTA.
CIR vs. SM Prime Holdings, Inc., 613 SCRA 774
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia) engages in the business of operating cinema houses are domestic corporations duly organized and existing under the laws of the Republic of the Philippines. On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales but SM Prime filed a letter-protest. BIR subsequently sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency, which the latter protested and such was denied by the latter ordering to pay the VAT deficiency. The BIR likewise sent First Asia a PAN for VAT deficiency on cinema ticket sales and several protests arise but were denied and ordered the latter to pay the VAT deficiency. Issue:
Whether or not the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets are subject to VAT. Ruling: No. Gross receipts derived by respondents from admission tickets in showing motion pictures, films or movies are not subject to value-added tax under Section 108 of the National Internal Revenue Code of 1997