Collector of Internal Revenue vs Antonio Campos Rueda on ground that plaintiffs, herein appellants, did not really have a

right of action.
42 SCRA 23 Political Law Definition of State
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative
In January 1955, Maria Cerdeira died in Tangier, Morocco (an
Code does not include donation inter vivos and if it does, it is
international zone [foreign country] in North Africa). At the time of
unconstitutional, null and void for violating SEC. 3 of the Jones Law
her death, she was a Spanish citizen and was a resident of Tangier.
(providing that no law shall embrace more than one subject and that
She however left some personal properties (shares of stocks and
the subject should be expressed in its titles ; that the Legislature has
other intangibles) in the Philippines. The designated administrator of
no authority to tax donation inter vivos; finally, that said provision
her estate here is Antonio Campos Rueda.
violates the rule on uniformity of taxation.
In the same year, the Collector of Internal Revenue (CIR) assessed
the estate for deficiency tax amounting to about P161k. Campos 5. CIR however contends that the word 'all gifts' refer clearly to
Rueda refused to pay the assessed tax as he claimed that the estate donation inter vivos and cited the doctrine in Tuason v. Posadas.
is exempt from the payment of said taxes pursuant to section 122 of
the Tax Code which provides: Issue: Whether or not the donations should be subjected to
inheritance tax
That no tax shall be collected under this Title in respect of
intangible personal property (a) if the decedent at the time of his YES. Sec. 1540 of the Administrative Code clearly refers to those
death was a resident of a foreign country which at the time of his donation inter vivos that take effect immediately or during the
death did not impose a transfer tax or death tax of any character in lifetime of the donor, but made in consideration of the death of the
respect of intangible person property of the Philippines not decedent. Those donations not made in contemplation of the
residing in that foreign country, or (b) if the laws of the foreign decedent's death are not included as it would be equivalent to
country of which the decedent was a resident at the time of his imposing a direct tax on property and not on its transmission.
death allow a similar exemption from transfer taxes or death taxes
of every character in respect of intangible personal property The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter
owned by citizens of the Philippines not residing in that foreign vivos as they are considered as advances in anticipation of
country. inheritance since they are made in consideration of death.
Campos Rueda was able to prove that there is reciprocity between
Tangier and the Philippines.
However, the CIR still denied any tax exemption in favor of the estate Vidal de Roces v. Posadas
as it averred that Tangier is not a state as contemplated by Section G.R. No. 34937 March 13, 1933
22 of the Tax Code and that the Philippines does not recognize Imperial, J.:
Tangier as a foreign country.
Facts:
ISSUE: Whether or not Tangier is a state. 1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her
HELD: Yes. For purposes of the Tax Code, Tangier is a foreign country. husband, as well as one Elvira Richards, received as donation several
parcels of land from Esperanza Tuazon. They took possession of the
A foreign country to be identified as a state must be a politically lands thereafter and likewise obtained the respective transfer
organized sovereign community independent of outside control certificates.
bound by penalties of nationhood, legally supreme within its
territory, acting through a government functioning under a regime of 2.The donor died a year after without leaving any forced heir. In her
law. The stress is on its being a nation, its people occupying a will, which was admitted to probate, she bequeathed to each of the
definite territory, politically organized, exercising by means of its donees the sum of P5,000. After the distribution of the estate but
government its sovereign will over the individuals within it and before the delivery of their shares, the CIR (appellee) ruled that
maintaining its separate international personality. plaintiffs as donees and legatees should pay inheritance taxes. The
Further, the Supreme Court noted that there is already an existing plaintiffs paid the taxes under protest.
jurisprudence (Collector vs De Lara) which provides that even a tiny
principality, that of Liechtenstein, hardly an international 3. CIR filed a demurrer on ground that the facts alleged were not
personality in the sense, did fall under the exempt category sufficient to constitute a cause of action. The court sustained the
provided for in Section 22 of the Tax Code. Thus, recognition is not demurrer and ordered the amendment of the complaint but the
necessary. Hence, since it was proven that Tangier provides such appellants failed to do so. Hence, the trial court dismissed the action
exemption to personal properties of Filipinos found therein so must on ground that plaintiffs, herein appellants, did not really have a
the Philippines honor the exemption as provided for by our tax law right of action.
with respect to the doctrine of reciprocity.
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative
Code does not include donation inter vivos and if it does, it is
Vidal de Roces v. Posadas unconstitutional, null and void for violating SEC. 3 of the Jones Law
G.R. No. 34937 March 13, 1933 (providing that no law shall embrace more than one subject and that
Imperial, J.: the subject should be expressed in its titles ; that the Legislature has
no authority to tax donation inter vivos; finally, that said provision
Facts: violates the rule on uniformity of taxation.
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her
husband, as well as one Elvira Richards, received as donation several 5. CIR however contends that the word 'all gifts' refer clearly to
parcels of land from Esperanza Tuazon. They took possession of the donation inter vivos and cited the doctrine in Tuason v. Posadas.
lands thereafter and likewise obtained the respective transfer
certificates. Issue: Whether or not the donations should be subjected to
inheritance tax
2.The donor died a year after without leaving any forced heir. In her
will, which was admitted to probate, she bequeathed to each of the YES. Sec. 1540 of the Administrative Code clearly refers to those
donees the sum of P5,000. After the distribution of the estate but donation inter vivos that take effect immediately or during the
before the delivery of their shares, the CIR (appellee) ruled that lifetime of the donor, but made in consideration of the death of the
plaintiffs as donees and legatees should pay inheritance taxes. The decedent. Those donations not made in contemplation of the
plaintiffs paid the taxes under protest. decedent's death are not included as it would be equivalent to
imposing a direct tax on property and not on its transmission.
3. CIR filed a demurrer on ground that the facts alleged were not
sufficient to constitute a cause of action. The court sustained the The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter
demurrer and ordered the amendment of the complaint but the vivos as they are considered as advances in anticipation of
appellants failed to do so. Hence, the trial court dismissed the action inheritance since they are made in consideration of death.

Tax II 1st Set Case Digest Page 1 of 4

 LUIS W. DISON a later date, Tan paid the taxes due but there was deficiency in
vs. payment of the inheritance taxes. Upon payment, he moved again
JUAN POSADAS, JR., Collector of Internal Revenue that he be allowed to pay advance inheritance, allowances, etc. This
time, the court allowed him to do so. The Commissioner tried to
G.R. No. L-36770 November 4, 1932 oppose this but to no avail. He then tried to garnish the bank
accounts of the estate but wasn't able to do so due to the quick
thinking of Tan to have the writ of garnishment discharged.
Facts:
ISSUE:
Don Feluix Dison, before his death, made a gift inter vivos Whether or not the herein respondent heirs be required to pay first
consisting of all his properties in favor of his legitimate and the inheritance tax before the probate court may authorize the
only son, Luis Dison. delivery of the hereditary share pertaining to each of them.

Plaintiff did not receive property of any kind of Don Felix RULING:
Dison upon the death of the latter; No, under the provisions of the Rules of Court, together
with the provision in the tax code, the distribution of a decedents
assets may only be ordered under the following circumstances 1.
The assessment of the inheritance tax payable by Luis
When the inheritance tax, among others, is paid 2. When a sufficient
Dison included the gift made to him by his deceased father.
bond is given to meet the payment of the inheritance tax and all
The same was paid under protest.
other obligations of the nature enumerated 3. When the payment of
the said tax and all the other obligations mentioned in the Rule has
Thereafter, plaintiff sued for the recovery of the been provided for. None of these were present when the questioned
inheritance tax paid under protest on the ground that he orders were issued at the case at bar. Also, the Supreme Court held
was not an heir of his father within the meaning of that there is no evidence on record that would show that the
Sec1540 of the Administrative Code, there being no probate court ever made a serious attempt to de what the values of
property left for plaintiff to inherit when his father died. the different assets the correctness of that such properties shall be
preserved for the satisfaction of those case In the third place that
The lower court ruled in favor of defendant Posadas. main of pesos taxes were being called by the Bureau of Inc. Revenue,
the least reasonable thing that the probate court should have done
Issue: 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.
Whether plaintiff is required to pay the inheritance tax under the
Administrative Code Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE
GUZMAN, administrator-appellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and
Ruling: HONORATA DE GUZMAN-MENDIOLA, oppositors-appellants.

The facts warrant the inference that the transfer was an

advancement upon the inheritance which the donee, as the sole and Lessons Applicable: allowable administration expenses
forced heir of the donor, would be entitled to receive upon the death
of the donor. The argument that plaintiff is not an heir because there FACTS:
was no longer any property is fallacious. The late Felix J. de Guzman was survived by 8
children. Letters of administration were issued to his son,
Doctor Victorino G. de Guzman. One of the properties left
Section 1540 Administrative Code. Additions of Gifts and Advances.
by the decedent was a residential house located in the
After the aforementioned deductions have been made, there shall
poblacion of which 8 children were given a 1/8 proindiviso
be added to the resulting amount the value of all gifts or advances
share in the project of partition. 3 heirs Crispina de
made by the predecessor to any of those who, after his death, shall
Guzmans-Carillo Honorata de Guzman-Mendiola and
prove to be his heirs, devises, legatees, or donees mortis causa.
Arsenio de Guzman interposed objections to the
administrator's disbursements in the total sum of
The phrase any of those who, after his death, shall prove to be his P13,610.48.
heirs include those who are given the status and rights of heirs, o Expense for the improvement and renovation of the decedent's
regardless of the quantity of property they may receive. Thus, residential house
construing the conveyance in question, which is the girft inter vivos, o Living expenses of Librada de Guzman while occupying the
the SC held that Sec, 1540 is thus applicable and the tax was family home without paying rent
properly assessed by the Collector of IR. o Other expenses: Lawyer's subsistence, Gratuity pay in lieu of
medical fee, stenographic notes, decedent's first death
Judgment of the lower court affirmed. anniversary, representation expenses
o Irrigation fee
MISAEL P. VERA VS. HON. JUDGE PEDRO C. NAVARRO Lower court: allowed the expenses
G.R. NO. L-27745; OCTOBER 18, 1977
CASTRO, C.J.: ISSUE: W/N they were allowable administration expenses

FACTS: Held: Some yes and some no. Affirmed with modification.
Elsie M. Gaches died without a child. However, she left a An executor or administrator is allowed the necessary
last will and testament in which he distributed her properties. Judge expenses in the care, management, and settlement of the
Tan filed a petition for the probate of the will, he was appointed as estate. He is entitled to possess and manage the
the executor of the estate. Judge Tan informed the Commissioner decedent's real and personal estate as long as it is
that the testate estate was about 10 million and that the estate and necessary for the payment of the debts and the expenses
inheritance taxes dues were about 9.5 million. Tan preliminarily of administration. He is accountable for the whole
submitted a motion for advance payment of allowances, inheritance, decedent's estate which has come into his possession, with
etc. pending the finality of probate of the will. He maintained that all the interest, profit, and income thereof, and with the
there are sufficient assets to cover whatever liability to the proceeds of so much of such estate as is sold by him, at the
government for taxes and other charges. The Commissioner opposed price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7,
this motion and showed some proof of claims for estate taxes and Rule 85, Rules of Court).
inheritance taxes. The court then disapproved the motion of Tan. On

Tax II 1st Set Case Digest Page 2 of 4

 One of the Conditions of the administrator's bond is that insane. His sister Josefina became the guardian over his person,
he should render a true and just account of his while his property was placed under the guardianship of the
administration to the court Philippine National Bank (PNB) by RTC of Dumaguete.
A hearing is usually held before an administrator's account After his death, PNB filed an accounting of his property under
is approved, especially if an interested Party raises guardianship valued at P3,037,672.09 in a Special Proceeding.
objections to certain items in the accounting report However, PNB did NOT file an estate tax return, instead it
Expenses: advised Pedro's heirs to execute an extrajudicial settlement and
o Expense for the improvement and renovation of the decedent's to pay the taxes on his estate.
residential house allowable Pursuant to the assessment by the BIR, the estate of Pedro paid
5 out of 8 co-owners consented to the use of the funds of the taxes in the amount of P2,557.
estate for repair and improvement of the family home. It is Josefina then filed a petition with RTC of Dumaguete for the
obvious that the expenses in question were incurred to issuance in her favor of letters of administration of the estate of
preserve the family home and to maintain the family's social her brother. This was granted and she was appointed as the
standing in the community. regular administratrix of Pedros estate.
o Living expenses of Librada de Guzman while occupying the family The BIR then made a second assessment for deficiency estate
home without paying rent disallowed tax which Josefina, in her capacity as administratrix and heir of
o Other expenses: Pedros estate, paid under protest. And without waiting for her
Lawyer's subsistence allowable protest to be resolved by the BIR, she filed a petition for review
Gratuity pay in lieu of medical fee allowable with the Court of Tax Appeals (CTA), praying for the refund of
stenographic notes disallowed P1,527,790.98, or in the alternative, P840,202.06, as
decedent's first death anniversary - disallowed erroneously paid estate tax.
representation expenses - unexplained = disallowed The CTA ordered the Commissioner of Internal Revenue to
Irrigation fee allowable since unquestioned though duplicate refund Josefina P252,585.59, representing erroneously paid
estate tax for the year 1988. Among the deductions from the
COMMISSIONER OF INTERNAL REVENUE, petitioner, gross estate allowed by the CTA were P60,753 representing the
vs. notarial fee for the Extrajudicial Settlement and the amount of
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. P50,000 as the attorney's fees for guardianship proceedings.
PAJONAR, as Administratrix of the Estate of Pedro P. Pajonar, CIR filed a MR which the CTA denied. It then filed with the CA a
respondents. petition for review which was also denied Hence, the present
appeal.
G.R. No. 123206
March 22, 2000
ISSUE: WON the notarial fee paid for the extrajudicial settlement of
P60,753 and the attorney's fees in the guardianship proceedings of
Doctrine: [Judicial Expenses] Expenses on extrajudicial settlement of
P50,000 may be allowed as deductions from the gross estate of
the estate are allowed as deductions. They come within the meaning
decedent in order to arrive at the value of the net estate. YES.
of administration expenses.
RATIO
Petitioner: Commissioner of Internal Revenue
Respondents: Court Of Appeals, Court Of Tax Appeals & Josefina P.
Judicial expenses are expenses of administration.
Pajonar (as Administratrix Of The Estate Of Pedro P. Pajonar)
o Administration expenses, as an allowable deduction from
Ponente: J. Gonzaga-Reyes
the gross estate of the decedent for purposes of arriving at
the value of the net estate, have been construed by the
Nature of the Case: Petition for Review on Certiorari on the Decision
federal and state courts of the United States to include all
of the Court of Appeals affirming the Resolution of the Court of Tax
expenses "essential to the collection of the assets,
Appeals granting Josefina P. Pajonar, as administratrix of the estate
payment of debts or the distribution of the property to
of Pedro P. Pajonar, a tax refund in the amount of P76,502.42,
the persons entitled to it." In other words, the expenses
representing erroneously paid estate taxes for the year 1988.
must be essential to the proper settlement of the estate.
This Court adopts the view under American jurisprudence that
Summary:
expenses incurred in the extrajudicial settlement of the estate
By reason of the Bataan Death March during World War II, Pedro
should be allowed as a deduction from the gross estate. There
Pajonar became insane. His property was placed under the
is no requirement of formal administration. It is sufficient that
guardianship of PNB, while his sister Josefina became the guardian
the expense be a necessary contribution toward the
over his person, and eventually the administratrix of his estate when
settlement of the case.
he died. After his death, his heirs executed an extrajudicial
Although the Tax Code specifies "judicial expenses of the
settlement and paid the estate tax. Thereafter, BIR assessed the
testamentary or intestate proceedings," there is no reason why
estate of Pedro deficiency taxes. The estate paid under protest and
expenses incurred in the administration and settlement of an
filed a case with the CTA, which in turn allowed P60,753
estate in extrajudicial proceedings should not be allowed.
representing the notarial fee for the Extrajudicial Settlement and
o However, deduction is limited to such administration
P50,000 attorney's fees for guardianship proceedings as among the
allowed deductions from the gross estate. expenses as are actually and necessarily incurred in the
collection of the assets of the estate, payment of the
Issue is WON the notarial fee and attorney's fees allowed as debts, and distribution of the remainder among those
deductions from the gross estate. YES. entitled thereto.
Such expenses may include executor's or
The notarial fee paid for the extrajudicial settlement is a deductible administrator's fees, attorney's fees, court fees and
expense since such settlement effected a distribution of Pedros charges, appraiser's fees, clerk hire, costs of
estate to his lawful heirs. Similarly, attorney's fees paid to PNB for preserving and distributing the estate and storing or
acting as the guardian of Pedros property during his lifetime should maintaining it, brokerage fees or commissions for
also be considered as a deductible administration expense. This is selling or disposing of the estate, and the like.
because PNB provided a detailed accounting of decedent's property Deductible attorney's fees are those incurred by the
and gave advice as to the proper settlement of the latter's estate, executor or administrator in the settlement of the
acts which contributed towards the collection of decedent's assets estate or in defending or prosecuting claims against or
and the subsequent settlement of the estate. due the estate.
It is clear then that the extrajudicial settlement was for the
FACTS: purpose of payment of taxes and the distribution of the estate
Pedro Pajonar was a member of the Philippine Scout, Bataan to the heirs.
Contingent, during World War II and was a part of the infamous The execution of the extrajudicial settlement necessitated the
Death March by reason of which he suffered shock and became notarization of the same. Hence the Contract of Legal Services
entered into between Josefina and counsel was presented in

Tax II 1st Set Case Digest Page 3 of 4

 evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial
Settlement.
o The notarial fee of P60,753.00 was incurred primarily to
settle the estate of Pedro. Said amount should then be
considered an administration expenses actually and
necessarily incurred in the collection of the assets of the
estate, payment of debts and distribution of the remainder
among those entitled thereto.
Attorney's fees, on the other hand, in order to be deductible
from the gross estate must be essential to the collection of
assets, payment of debts or the distribution of the property to
the persons entitled to it. The services for which the fees are
charged must relate to the proper settlement of the estate.
o The amount of P50,000.00 was incurred as attorney's fees
in the guardianship proceedings.
o The guardianship proceeding in this case was necessary for
the distribution of the property of the deceased Pedro.
PNB was appointed guardian over the assets of the
deceased, and that necessarily the assets of the deceased
formed part of his gross estate.
PNB provided a detailed accounting of decedent's
property and gave advice as to the proper settlement
of the latter's estate, acts which contributed towards
the collection of decedent's assets and the
subsequent settlement of the estate.

DECISION: WHEREFORE, the December 21, 1995 Decision of the

Court of Appeals is AFFIRMED.

MORAN SISON VS. TEODORO

G.R. NO. L-9271 MARCH 29, 1957
BAUTISTA ANGELO, J.:

Facts:
1. The CFI of Manila which had jurisdiction over the estate of
Margarita David, issued an order appointing appellantCarlos Moran
Sison as judicial administrator without compensation after filing a
bond. After entering into his duties as administrator, he filed an
accounting of his administration which included items as an expense
of administration the premiums he paid on his bond.

2. One of the heirs, herein appellee Narcisa Teodoro, objected to the

approval of the items. The court approved the report but disallowed
the items objected to on the ground that these cannot be
considered as expenses of administration. Moran Sison filed a
motion for reconsideration but was denied hence this appeal.

Issue: Whether or not an executor or judicial administrator can

validly charge the premiums on his bond as an expense of
administration against the estate

NO.

The premiums paid by an executor or administrator serving without

a compensation for his bond cannot be charged against the estate.
Further Sec. 7 of Rule 86 of the Rules of Court does not authorize
the executor or administrator to charge to the estate the money
spent for the bond. As held in the case of Sulit v. Santos (56 Phil 626),
the position of an executor or administrator is one of trust. The law
safeguards the estates of deceased persons by making as a
requirement for qualification the ability to give a suitable bond. The
execution of said bond is therefore a condition precedent to
acceptance of the responsibilities of the trust.

Further, the giving of the bond is not a necessary expense in the

care, management, and settlement of the estate within the meaning
of Sec. 680 of the Civil Code of Procedure, since such are the
requirements after the executor or administrator has already
qualified for the office and has entered the performance of his
duties.

Tax II 1st Set Case Digest Page 4 of 4