Dizon Vs CTA
Dizon Vs CTA
Dizon Vs CTA
140944
capacity as the Judicial Administrator of
the Estate of the deceased JOSE P. Present:
FERNANDEZ,
Petitioner, YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COURT OF TAX APPEALS
and COMMISSIONER OF INTERNAL Promulgated:
REVENUE,
Respondents. April 30, 2008
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
The Facts
COMPUTATION OF TAX
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]
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
Documents/
Signatures BIR Record
4. Signature of Alberto S.
Enriquez 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-
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:
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]
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.
1. 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;
2. 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;
3. 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
4. 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.
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:
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]
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...
xxxx
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]
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]
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.
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.
Verily, the second issue in this case involves the construction of Section
79 of the National Internal Revenue Code[59] (Tax Code) which provides for the
[58]
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]
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. 5th 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]
SO ORDERED.
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.
REYNATO S. PUNO
Chief Justice
[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 (