THE COLLECTOR OF INTERNAL REVENUE, PETITIONER, VS. ANTONIO CAMPOS RUEDA, RESPONDENT.

The basic issue posed by petitioner Collector of Internal Revenue
in this appeal from a decision of the Court of Tax Appeals as to whether or not
the requisites of statehood, or at least much thereof as may be necessary for
the acquisition of an inter­national personality, must be satisfied for a
“foreign country” to fall within the exemption of Section 122 of the
National Internal Revenue Code^[1]
is now ripe for adjudication.  The Court
of Tax Appeals answered the question in the negative, and thus reversed the
action taken by petitioner Collector, who would hold respondent Antonio Campos Rueda, as administrator of the estate of the late Estrella Soriano Vda. de Cerdeira, liable for the
sum of P161,874.95 as deficiency estate and inheritance taxes for the transfer
of intangible personal properties in the Philippines,
the deceased, a Spanish national having been a resident of Tangier,
Morocco from 1931 up to
the time of her death in 1955.  In an
earlier resolution promulgated May 30,
1962, this Court on the assumption that the need for resolving the
principal question would be obviated, referred the matter back to the Court of
Tax Appeals to determine whether the alleged law of Tangier did grant the
reciprocal tax exemption required by the aforesaid Section 122.  Then came an order from the Court of Tax
Appeals submitting copies of legislation of Tangier that would manifest that
the element of reciprocity was not lack­ing. 
It was not until July 29, 1969
that the case was deemed submitted for decision.  When the petition for review was filed on January 2, 1958, the basic issue raised
was impressed with an element of novelty. 
Four days thereafter, however, on January
6, 1958, it was held by this Court that the aforesaid provision
does not require that the “foreign country” possess an international
personality to come within its terms.^[2]
Accordingly, we have to affirm.

The decision of the Court of Tax Appeals, now under review, sets
forth the background facts as follows: 
“This is an appeal interposed by petitioner Antonio Campos Rueda, as administrator of the estate of the deceased Doña Maria de la Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector of
Internal Revenue, assessing against and demanding from the former the sum of
P161,874.95 as deficiency estate and inheritance taxes, including interests and
penalties, on the transfer of in­tangible personal properties situated in the Philippines
and belong­ing to said Maria de la Estrella Soriano Vda. de Cerdeira, Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for
short) is a Spanish national by reason of her marriage to a Spanish citizen and
was a resident of Tangier, Morocco
from 1931 up to her death on January 2,
1955.  At the time of her
demise she left, among others, intangible personal properties in the Philippines.”^[3]
Then came this portion:  “On September 29, 1955, petitioner filed
a provisional estate and inheritance tax return on all the properties of the
late Maria Cerdeira. 
On the same date, respondent, pending investigation, issued an
assessment for estate and inheritance taxes in the respective amounts of
P111,592.48 and P157,791.48, or a total of P269,383.96, which tax liabilities
were paid by petitioner.  On November 17, 1955, an amended return
was filed * * * wherein intangible personal properties with the value of
P396,308.90 were claimed as exempted from taxes.  On November 23, 1955, respondent, pending
investigation, issued another assessment for estate and inheritance taxes in
the amounts of P202,262.40 and P267,402.84, respectively, or a total of
P469,665.24 * * *.  In a letter dated January 11, 1956, respondent denied
the request for exemption on the ground that the law of Tangier is not
reciprocal to Section 122 of the National Internal Revenue Code.  Hence, respondent demanded the payment of the
sums of P239,439.49 representing deficiency estate and inheritance taxes
including ad valorem penalties,
surcharges, interests and compromise penalties * * *.  In a letter, dated February 8, 1956, and
received by respondent on the following day, petitioner request ed for the
reconsideration of the decision denying the claim for tax exemption of the
intangible personal properties and the imposition of the 25% and 5% ad valorem penalties * * *.  However, respondent denied this request, in
his letter dated May 5, 1956
* * * and received by petitioner on May
21, 1956.  Respondent
premised the denial on the grounds that there was no reciprocity [with Tangier,
which was moreover] a mere principality, not a foreign country.  Consequently, respondent demanded the payment
of the sums of P73,851.21 and P88,023.74 respectively, or a total of
P161,874.95 as deficiency estate and inheritance taxes including surcharges,
interests and compromise penalties.”^[4]

The matter was then elevated to the Court of Tax Appeals.  As there was no dispute between the parties
regarding the values of the properties and the mathematical correctness of the
deficiency assessments, the principal question as noted dealt with the recipro­city
aspect as well as the insistence by the Collector of Internal Revenue that
Tangier was not a foreign country within the meaning of Section 122.  In ruling against the contention of the
Collector of Internal Revenue, the appealed decision states:  “In fine, we believe, and so hold, that
the expression ‘foreign country’, used in the last proviso of Section 122 of
the National Internal Revenue Code, refers to a government of that foreign
power which, although not an international person in the sense of international
law, does not impose transfer or death taxes upon intangible personal properties
of our citizens not residing therein, or whose law allows a similar exemption
from such taxes.  It is, therefore, not
necessary that Tangier should have been recognized by our Government in order
to entitle the petitioner to the exemption benefits of the last proviso of
Section 122 of our Tax Code.”^[5]

Hence this appeal to this Court by petitioner.  The respective briefs of the parties were
duly submitted, but as above indicated, instead of ruling definitely on the
question, this Court, on May 30, 1962,
resolved to inquire further into the question of reciprocity and sent back the
case to the Court of Tax Appeals for the reception of evidence thereon.  The dispositive
portion of such resolution reads as follows: 
“While section 122 of the Philippine Tax Code aforequoted
speaks of ‘intangible personal property’ in both sub­divisions (a) and (b); the
alleged laws of Tangier refer to ‘bienes muebles situados en Tanger‘, ‘bienes muebles radicantes en Tanger‘, ‘movables’ and ‘movable property’.  In order that this Court may be able to
determine whether the alleged laws of Tangier grant the reciprocal tax
exemptions required by Section 122 of the Tax Code, and without, for the time
being, going into the merits of the issues raised by the petitioner-appellant,
the case is [remanded] to the Court of Tax Appeals for the reception of
evidence or proofs on whether or not the words ‘bienes
muebles‘, ‘movables’ and ‘movable property’ as used
in the Tangier laws, include or embrace ‘intangible personal property’, as used
in the Tax Code.”^[6]
In line with the above resolution, the Court of Tax Appeals admitted evidence
submitted by the administrator, petitioner Antonio Campos Rueda,
consisting of exhibits of laws of Tangier to the effect that “the
transfers by reason of death of movable properties, corporeal or incorporeal,
including furniture and personal effects, as well as of securities, bonds,
shares, * * *, were not subject, on that date and in said zone, to the payment
of any death tax, whatever might have been the nationality of the deceased or
his heirs and legatees.” It was further noted in an order of such Court
referring the matter back to us that such “exhibits were duly admitted in
evidence during the hearing of the case on September 9, 1963. 
Respondent presented no evidence.”^[7]

The controlling legal provision as noted is a proviso in Section
122 of the National Internal Revenue Code. 
It reads thus:  “That no tax
shall be collected under this Title in respect of intangible personal property
(a) if the decedent at the time of his death was a resident of a foreign
country which at the time of his death did not impose a transfer tax or death
tax of any character in respect of intangible personal property of citizens of
the Philippines not residing in that foreign country, or (b) if the laws of the
foreign country of which the decedent was a resident at the time of his death
allow a similar exemption from transfer taxes or death taxes of every character
in respect of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.”^[8]
The only obstacle therefore to a definitive ruling is whether or not as
vigorously insisted upon by petitioner the acquisition of international person­ality
is a condition sine qua non to Tangier being considered a
“foreign country.” Deference to the De Lara ruling, as was made clear
in the opening paragraph of this opinion, calls for an affirmance
of the decision of the Court of Tax Appeals.

It does not admit of doubt that if a foreign country is to be identified
with a state, it is required in line with Pound’s formulation that it be a
politically organized sovereign community independent of outside control bound
by ties of nationhood, legally supreme with­in its territory, acting through a
government functioning under a regime of law.^[9]
It is thus a sovereign person with the people com­posing it viewed as an
organized corporate society under a government with the legal competence to
exact obedience to its commands.^[10]
It has been referred to as a body-politic organized by common consent for
mutual defense and mutual safety and to promote the general welfare.^[11]
Correctly has it been described by Esmein as
“the juridical personification of the nation.”^[12]
This is to view it in the light of its historical development.  The stress is on its being a nation, its
people occupying a definite territory, politically organized, exercising by
means of its government its sovereign will over the individuals within it and
maintaining its separate international person­ality.  Laski could speak
of it then as a territorial society divided into government and subjects,
claiming within its allotted area a supremacy over all other institutions.^[13]
McIver similarly would point to the power entrusted to its government to
maintain within its territory the conditions of a legal order and to enter into
inter­national relations.^[14]
With the latter requisite satisfied, inter­national law does not exact
independence as a condition of statehood. 
So Hyde did opine.^[15]

Even on the assumption then that Tangier is bereft of
international personality petitioner has not successfully made out a case.  It bears repeating that four days after the
filing of this petition on January 6, 1958 in Collector of Internal Revenue v.
De Lara,^[16]
it was specifically held by us: 
“Considering the State of California as a foreign country in
relation to section 122 of our Tax Code we believe and hold, as did the Tax
Court, that the Ancilliary Administrator is entitled
to exemption from the inheritance tax on the intangible personal property found
in the Philippines.”^[17]
There can be no doubt that California
as a state in the American Union was lacking in the alleged requisite of
international personality.  Nonetheless,
it was held to be a foreign country within the meaning of Section 122 of the
National Internal Revenue Code.^[18]

What is undeniable is that even prior to the De Lara ruling, this
Court did commit itself to the doctrine that even a tiny principality, that of Liechtenstein,
hardly an international person­ality in the traditional sense, did fall under
this exempt category.  So it appears in
an opinion of the Court by the then Acting Chief Justice Bengzon,
who thereafter assumed that position in a permanent capacity, in Kiene v. Collector of Internal Revenue.^[19]
As was therein noted:  “The Board
found from the documents submitted to it – proof of the laws of Liechtenstein –
that said country does not impose estate, inheritance and gift taxes on
intangible personal property of Filipino citizens not residing in that country.
 Wherefore, the Board declared that
pursuant to the exemption above established, no estate or inheritance taxes
were collectible, Ludwig Kiene being a resident of Liechtenstein
when he passed away.”^[20]
Then came this definitive ruling: 
“The Collector – hereafter named respondent – cites decisions of
the United States Supreme Court and of this Court, holding that intangible
personal property in the Philippines belonging to a non­resident foreigner, who
died outside of this country is subject to the estate tax, in disregard of the
principle ‘mobilia sequuntur
personam‘. 
Such property is admittedly taxable here.  Without the proviso above quoted, the shares
of stock owned here by the Ludwig Kiene would be
concededly subject to estate and inheritance taxes.  Nevertheless our Congress chose to make an
exemption where conditions are such that demand reciprocity – as in this
case.  And the exemption must be
honored.”^[21]

WHEREFORE, the decision of the respondent Court of Tax
Appeals of October 30, 1957
is affirmed.  Without pronouncement as to
costs.

Concepcion, C.J., Makalintal,
Zaldivar, Castro, Barredo, Villamor, and Makasiar, JJ., concur.

Reyes, J.B.L., J., in the
result.

Teehankee, J., did not take part.

^[1]
Commonwealth Act No. 466 as amended (1939).

^[2]
Collector of Internal Revenue v. De Lara, 102 Phil. 813 (1958).

^[3]
Annex C, Petition, Decision of Court of Tax Appeals, p. 1.

^[4] Ibid,
pp. 2-3.

^[5] Ibid,
p. 9.

^[6]
Resolution, pp. 4-5.

^[7]
Order of November 19, 1963,
p. 2.

^[8] Section
122 of the National Internal Revenue Code (1939) reads insofar as
relevant:  “For the purposes of this
Title the terms ‘gross estate’ and ‘gift’ include real estate and tangible
personal property, or mixed, physically located in the Philippines; franchise
which must be exercised in the Philippines; shares, obligations, or bonds
issued by any corporation or sociedad anonima organized or constituted in the Philippines
in accordance with its laws; shares, obligations, or bonds issued by any
foreign corporation eighty-five per centum of the business of which is
located in the Philippines; shares, obligations, or bonds issued by any foreign
corporation if such shares, obligations, or bonds have acquired a business situs in the Philippines; shares or rights in any
partnership, business or industry established in the Philippines; or any
personal property, whether tangible or intangible, located in the Philippines; Provided,
however, That in the case of a resident, the transmission or transfer of
any intangible perso­nal property, regardless of its location, subject to the
taxes prescribed in this Title; And provided, further, that no tax shall
be collected under this Title in respect of intangible personal property (a) if
the decedent at the time of his death was a resident of a foreign country which
at the time of his death did not impose a transfer tax or death tax of any
character in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or (b) if the laws of the
foreign country of which the decedent was a resident at the time of his death
allow a similar exemption from transfer taxes or death taxes of every character
in respect of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.”

^[9]
Cf. Pound:  “The political
organization of a society legally supreme within and independent of legal
control from without. ” II Jurisprudence, p. 346 (1959).

^[10]
Cf. Willoughby, Fundamental Concepts of Public Law, p. 3 (1925).

^[11]
Cf. 1 Cooley, Constitutional Limitations, p. 3 (1927).

^[12]
Cf. Cohen, Recent Theories of Sovereignty, p. 15 (1937).  Pitamic speaks of
it as a juridical organization of human beings. 
Treatise on the State, p. 17 (1933).

^[13] Laski, Grammar of Politics, p. 25 (1934).

^[14]
Cf. McIver, The State, p. 22 (1926).

^[15]
Hyde, International Law, 2nd ed., p. 22 (1945).

^[16]
102 Phil. 813 (1958).

^[17] Ibid,
p. 820.

^[18]
In the subsequent case of Collector of Internal Revenue v. Fisher, L-11622,
January 28, 1961, 1 SCRA 93, this Court did find that the recipro­city found in
the California statutes was partial not total, thus holding that
Section 122 would not apply, without however reversing the doctrine that an
international personality is not a requisite.

^[19]
97 Phil. 352 (1955).

^[20] Ibid,
p. 354.

^[21] Ibid,
p. 355.