COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. LILIA YUSAY GONZALES AND THE COURT OF TAX APPEALS, RESPONDENTS.

Matias Yusay,
a resident of Pototan,
Iloilo, died intestate on
May 13,
1948,
leaving two heirs, namely, Jose S. Yusay, a legitimate
child, and Lilia Yusay Gonzales, an acknowledged
natural child. Intestate proceedings for the settlement of his estate were
instituted in the Court of First Instance of Iloilo (Special Proceedings No.
459). Jose S. Yusay was therein appointed
administrator.

On May
11, 1949
Jose S. Yusay filed with the Bureau of Internal
Revenue an estate and inheritance tax return declaring therein the following
properties:

Personal Properties:
Palay…………………………………………………………………………..	P 6,444.00
Carabaos…………………………………………………………………….	1000.00	P7,444.00
Real Properties:
Capital, 74
parcels
Conjugal 19
parcels
assessed at………………………………………………………………….	P179,760.00
Total gross estate…………………………………………………………		P187,204.00

The return mentioned no
heir.

Upon investigation however the
Bureau of Internal Revenue found the following properties

Personal Properties:
Palay………………………………………………………………….	P6,444.00
Carabaos…………………………………………………………..	1,500.00
Packard Automobile ……………………………………………	2,000.00
2 Aparadora………………………………………………………	500.00	P10,444.00
Real Properties:
Capital, 25 parcels assessed at ……………………………….	P87,715.32
1/2 of Conjugal, 130 parcels assessed at…………………..	P121,425.00	P209,140.32
Total………………………………………………………………………		P219,584.32

 

 

The fair market value of the real
properties was computed by increasing the assessed value by forty
percent.

Based on the above findings, the
Bureau of Internal Revenue assessed on October 29,
1953
estate and inheritance taxes in the sums of P6,849.78
and P16,970.63, respectively.

On January 25,
1955 the
Bureau of Internal Revenue increased the assessment to P8,225.89 as estate tax and P22,117.10 as inheritance tax plus
delinquency interest and demanded payment thereof on or before February 28,
1955.
Meanwhile, on February 16,
1955, the
Court of First Instance of Iloilo required Jose S. Yusay to show proof of payment of said estate and
inheritance taxes.

On March
3, 1955
Jose S. Yusay requested an extension of time within
which to pay the tax. He posted a surety bond to guarantee payment of the taxes
in question within one year. The Commissioner of Internal Revenue however denied
the request. Then he issued a warrant of distraint and
levy which he transmitted to the Municipal Treasurer of Pototan for execution. This warrant was not enforced because
all the personal properties subject to distraint were
located in Iloilo City.

On May
20, 1955
the Provincial Treasurer of Iloilo requested the BIR Provincial
Revenue Officer to furnish him copies of the assessment notices to support a
motion for payment of taxes which the Provincial Fiscal would file in Special
Proceedings No. 459 before the Court of First Instance of Iloilo. The papers
requested were sent by the Commissioner of Internal Revenue to the Provincial
Revenue Officer of Iloilo to be transmitted to the Provincial Treasurer. The
records do not however show whether the Provincial Fiscal filed a claim with the
Court of First Instance for the taxes due.

On May
30, 1956
the commissioner appointed by the Court of First Instance for the purpose,
submitted a re-amended project of partition which listed the following
properties:

Personal Properties :
Buick Sedan ……………………………………………………………….	P8,100.00
Packard car………………………………………………………………..	2,000.00
Aparadors…………………………………………………………………	500.00
Cash in Bank (PNB)…………………………………………………….	8,858.46
Palay……………………………………………………………………….	6,444.00
Carabaos…………………………………………………………………	1,500.00	P27,402.46
Real Properties:
Land, 174 parcels assessed at…………………………………..	P324,797.21
Buildings…………………………………………………………………	4,500.00	P329,297.21
Total……………………………………………………………………….		P356,699.67

 

More than a year later,
particularly on July 12,
1957, an
agent of the Bureau of Internal Revenue apprised the Commissioner of Internal
Revenue of the existence of said reamended project of
partition. Whereupon, the Internal Revenue Commissioner caused
the estate of Matias Yusay
to be reinvestigated for estate and Inheritance tax liability.
Accordingly, on February 13,
1958 he
issued the following assessment:

Estate Tax ………………………………………………………………………..		P16,246,04
5% surcharge…………………………………………………………………		411.29
Delinquency Interest……………………………………………………….		11,868.90
Compromise:
No Notice of death…………………………………………………………..	P15
Late Payment…………………………………………………………………	40
Total…………………………………………………………………………….		55.00
		P28,581.23
Inheritance Tax…………………………………………………………….		P39,178.12
5% surcharge………………………………………………………………		1,105.86
Delinquency interest…………………………………………………….		28,808.75
Compromise for late payment………………………………………..		50.00
Total…………………………………………………………………………..		P69,142.73
Total estate and inheritance taxes………………………………….		P97,723.96

 

Like in previous assessments, the
fair market value of the real properties was arrived at by adding 40% to the
assessed value.

In view of the demise of Jose S.
Yusay, said assessment was sent to his widow, Mrs.
Plorencia Piccio Vda. de Yusay, who succeeded him
in the administration of the estate of Matias Yusay.

No payment having been made
despite repeated demands, the Commissioner of Internal Revenue filed a proof of
claim for the estate and inheritance taxes due and a motion for its allowance
with the settlement court invoking priority of lien pursuant to Section 315 of
the Tax Code.

On June 1,
1959,
Lilia Yusay, through her counsel, Ramon Gonzales,
filed an answer to the proof of claim alleging non-receipt of the assessment of
February 13,
1958, the
existence of two administrators, namely, Plorencia
Piccio Vda. de Yusay who administered two-thirds of the estate, and Lilia
Yusay, who administered the remaining one-third, and
her willingness to pay the taxes corresponding to her share, and praying for
deferment of the resolution on the motion for the payment of taxes until after a
new assessment corresponding to her share was issued.

On November 17,
1959
Lilia Yusay disputed the legality of the assessment
dated February 13,
1958. She
claimed that the right to make the same had prescribed inasmuch as more than
five years had elapsed since the filing of the estate and inheritance tax return
on May 11,
1949. She
therefore requested that the assessment be declared invalid and without force
and effect. This request was rejected by the Commissioner in his letter dated
January 20, 1960, received by Lilia Yusay on March 14,
1960, for the reasons, namely, (1) that the right to assess the taxes in
question has not been lost by prescription since the return which did not name
the heirs cannot be considered a true and complete return sufficient to start
the running of the period of limitations of five years under Section 331 of the
Tax Code and pursuant to Section 332 of the same Code he has ten years within
which to make the assessment counted from the discovery on September 24, 1953 of
the identity of the heirs; and (2) that the estate’s administrator waived the
defense of prescription when he filed a surety bond on March 3, 1955 to
guarantee payment of the taxes in question and when he requested postponement of
the payment of the taxes pending determination of who the heirs are by the
settlement court.

On April
13, 1960
Lilia Yusay filed a petition for review in the Court
of Tax Appeals assailing the legality of the assessment dated February 13,
1958.
After hearing the parties, said Court declared the right of the Commissioner of
Internal Revenue to assess the estate and inheritance taxes in question to have
prescribed and rendered the following judgment:

“WHEREFORE, the decision of
respondent assessing against the estate of the late Matias Yusay estate and
inheritance taxes is hereby reversed. No
costs.”

The Commissioner of Internal
Revenue appealed to this Court and raises the following
issues:

1. Was the petition for review
filed in the Court of Tax Appeals within the 30-day period provided for in
Section 11 of Republic Act 1125?

2. Could the Court of Tax Appeals
take cognizance of Lilia Yusay’s appeal despite the
pendency of the “Proof of Claim” and “Motion for
Allowance of Claim and for an Order of Payment of Taxes” filed by the
Commissioner of Internal Revenue in Special Proceedings No. 459 before the Court
of First Instance of lloilo?

3. Has the right of the
Commissioner of Internal Revenue to assess the estate and inheritance taxes in
question prescribed?

On November 17,
1959
Lilia Yusay disputed the legality of the assessment of
February 13,
1958. On
March 14,
1960 she
received the decision of the Commissioner of Internal Revenue on the disputed
assessment. On April 13,
1960 she
filed her petition for review in the Court of Tax Appeals. Said Court correctly
held that the appeal was seasonably interposed pursuant to Section 11 of
Republic Act 1125. We already ruled in St. Stephen’s Association v. Collector of
Internal Revenue,^[1] that the counting of the
thirty days within which to institute an appeal in the Court of Tax Appeals
should commence from the date of receipt of the decision of the Commissioner on
the disputed assessment, not from the date the assessment was
issued.

Accordingly, the thirty-day
period should begin running from March 14,
1960, the
date Lilia Yusay received the appealable decision. Prom said date to April 13,
1960,
when she filed her appeal in the Court of Tax Appeals, is exactly thirty days.
Hence, the appeal was timely.

Next, the Commissioner attacks
the jurisdiction of the Court of Tax Appeals to take cognizance of Lilia Yusay’s appeal on the ground of lis pendens. He maintains that the
pendency of his motion for allowance of claim and for
order of payment of taxes in the Court of First Instance of Iloilo would
preclude the Court of Tax Appeals from acquiring jurisdiction over Lilia Yusay’s appeal. This contention lacks
merit.

Lilia Yusay’s cause seeks to resist the legality of the assessment
in question. Should she maintain it in the settlement court or should she
elevate her cause to the Court of Tax Appeals? We say, she acted correctly by
appealing to the latter court. An action involving a disputed assessment for
internal revenue taxes falls within the exclusive appellate jurisdiction of the
Court of Tax Appeals.^[2] It is in that forum, to the
exclusion of the Court of First Instance,^[3] where she could ventilate
her defenses against the assessment.

Moreover, the settlement court,
where the Commissioner would wish Lilia Yusay to
contest the assessment, is of limited jurisdiction. And under the Rules,^[4] its authority relates only
to matters having to do with the settlement of estates and probate of wills of
deceased persons.^[5] Said court has no
jurisdiction to adjudicate the contentions in question, which – assuming they do
not come exclusively under the Tax Court’s cognizance – must be submitted to the
Court of First Instance in the exercise of its general jurisdiction.^[6]

We now come to the issue of
prescription. Lilia Yusay claims that since the latest
assessment was issued only on February 13,
1958 or
eight years, nine months and two days from the filing of the estate and
inheritance tax return, the Commissioner’s right to make it has expired. She
would rest her stand on Section 331 of the Tax Code which limits the right of
the Commissioner to assess the tax within five years from the filing of the
return.

The Commissioner claims that
fraud attended the filing of the return; that this being so, Section 332(a) of
the Tax Code would apply.^[7] It may be well to note that
the assessment letter itself (Exhibit 22) did not impute fraud in the return
with intent to evade payment of the tax. Precisely, no surcharge for fraud was
imposed. In his answer to the petition for review filed by Lilia Yu-say in the
Court of Tax Appeals, the Commissioner alleged no fraud. Instead, he broached
the insufficiency of the return as barring the commencement of the running of
the statute of limitations. He raised the point of fraud for the first time in
the proceedings, only in his memorandum filed with the Tax Court subsequent to
resting his case. Said Court rejected the plea of fraud for lack of allegation
and proof, and ruled that the return, although not accurate, was sufficient to
start the period of prescription.

Fraud is a question of fact. The
circumstances constituting it must be alleged and proved in the court
below.^[9] And the finding of said
court as to its existence and non-existence is final unless clearly shown to be
erroneous.^[10] As the court a quo found
that no fraud was alleged and proved therein, We see no reason to entertain the
Commissioner’s assertion that the return was fraudulent.

The conclusion, however, that the
return filed by Jose S. Yusay was sufficient to
commence the running of the prescriptive period under Section 331 of the Tax
Code rests on no solid ground.

Paragraph (a) of Section 93 of
the Tax Code lists the requirements of a valid return. It states:

“(a) Requirements. – In all cases of
inheritance or transfers subject to either the estate tax or the inheritance
tax, or both, or where, though exempt from both taxes, the gross value of the
estate exceeds three thousand pesos, the executor, administrator, or anyone of
the heirs, as the case may be, shall file a return under oath in duplicate,
setting forth (1) the value of the gross estate of the decedent at the time of
his death, or, in case of a nonresident not a citizen of the Philippines, or
that part of his gross estate situated in the Philippine; (2) the deductions
allowed from gross estate in determining net estate as defined in section
eighty-nine; (3) such part of such information as may at the time be
ascertainable and such supplemental data as may be necessary to establish the
correct taxes.”

A return need not be complete in
all particulars. It is sufficient if it complies substantially with the law.
There is substantial compliance (1) when the return is made in good faith and is
not false or fraudulent; (2) when it covers the entire period involved; and (3)
when it contains information as to the various items of income, deduction and
credit with such definiteness as to permit the computation and assessment of the
tax.^[11]

There is no question that the
estate and inheritance tax return filed by Jose S. Yusay was substantially defective.

First, it was incomplete. It
declared only ninety-three parcels of land representing about 400 hectares and
left out ninety-two parcels covering 503 hectares. Said huge underdeclaration could not have been the result of an
oversight or mistake. As found in G.R. No. L-11378, supra note 7, Jose S. Yusay very well knew of the existence of the omitted
properties. Perhaps his motive in underdeclaring the
inventory of properties attached to the return was to deprive Lilia Yusay from inheriting her legal share in the hereditary
estate, but certainly not because he honestly believed that they did not form
part of the gross estate.

Second, the return mentioned no
heir. Thus, no inheritance tax could be assessed. As a matter of law, on the
basis of the return, there would be no occasion for the imposition of estate and
inheritance taxes. When there is no heir – the return showed none – the
intestate estate is escheated to the State.^[12] The State taxes not
itself.

In a case where the return was
made on the wrong form, the Supreme Court of the
United
States held that the filing thereof did
not start the running of the period of limitations.^[13] The reason is that the
return submitted did not contain the necessary information required in the
correct form. In this Jurisdiction, however, the Supreme Court refrained from
applying the said ruling of the United States Supreme Court in Collector of
Internal Revenue v. Central Azucarera de Tarlac, G.R. No. L-11760-61,
July 31,
1958, on the ground that the return
was complete in itself although inaccurate. To our mind, it would not make
much difference where a return is made on the correct form prescribed by the
Bureau of Internal Revenue if the data therein required are not supplied by the
taxpayer. Just the same, the necessary information for the assessment of the tax
would be missing.

The return filed in this case was
so deficient that it prevented the Commissioner r 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 data obtained, not from the return, but from
other sources. We therefore hold the view that the return in question was no
return at all as required in Section 93 of the Tax Code.

The law imposes upon the taxpayer
the burden of supplying by the return the information upon which an assessment
would be based.^[14] His duty complied with,
the taxpayer is not bound to do anything more than to wait for the Commissioner
to assess the tax. However, he is not required to wait forever. Section 331 of
the Tax Code gives the Commissioner five years within which to make his
assessment. ^[15] Except, of course, if the
taxpayer failed to observe the law, in which case Section 332 of the same Code
grants the Commissioner a longer period. Non-observance consists in filing a
false or fraudulent return with intent to evade the tax or in filing no return
at all.

Accordingly, for purposes of
determining whether or not the Commissioner’s assessment of February 13,
1958 is
barred by prescription, Section 332(a) which is an exception to Section 331 of
the Tax Code finds application. ^[16]We quote Section 332(a):

“SEC.
332.
Exceptions as to period of limitation of
assessment and collection of taxes. – (a) In the case of a false or
fraudulent re-turn with Intent to evade tax or of a failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud, or
omission.”

As stated, the Commissioner came
to know of the identity of the heirs on September 24,
1953 and
the huge underdeclaration in the gross estate on
July 12,
1957.
Prom the latter date, Section 94 of the Tax Code obligated him to make a return
or amend one already filed based on his own knowledge and information obtained
through testimony or otherwise, and subsequently to assess thereon the taxes
due. The running of the period of limitations under Section 332(a) of the Tax
Code should therefore be reckoned from said date for, as aforesaid, it is from
that time that the Commissioner was expected by law to make his return and
assess the tax due thereon. Prom July 12,
1957 to
February 13,
1958, the
date of the assessment now in dispute, less than ten years have elapsed. Hence,
prescription did not abate the Commissioner’s right to issue said
assessment.

Anent the Commissioner’s
contention that Lilia Yusay is estopped from raising the defense of prescription because
she failed to raise the same in her answer to the motion for allowance of claim
and for the payment of taxes filed in the settlement court (Court of First
Instance of Iloilo), suffice it to state that it would be unjust to the taxpayer
if We were to sustain such a view. The Court of First Instance acting as a
settlement court is not the proper tribunal to pass upon such defense, therefore
it would be but futile to raise it therein. Moreover, the Tax Code does not bar
the right to contest the legality of the tax after a taxpayer pays it. Under
Section 306 thereof, he can pay the tax and claim a refund therefor. A
fortiori his willingness to pay the tax is no waiver to raise
defenses against the tax’s legality.

WHEREFORE, the judgment appealed from is
set aside and another entered affirming the assessment of the Commissioner of
Internal Revenue dated February 13, 1958. Lilia Yusay
Gonzales, as administratrix of the intestate estate of
Matias Yusay, is hereby
ordered to pay the sums of P16,246.04 and P39,178.12 as estate and inheritance
taxes, respectively, plus interest and surcharge for delinquency in accordance
with Section 101 of the National Internal Revenue Code, without prejudice to
reimbursement from her co-administratrix, Plorencia Piccio Vda. de Yusay for the latter’s
corresponding tax liability. No costs.

SO ORDERED.

Concepcion, C.J., Reyes, J. B. L., Barrera,
Dizon, Regala, Makalintal, Sanchez and Ruiz Castro, JJ.,
concur.

Zaldivar, J., no part.

^[1] G.R. No. L-11238, August 21,
1958. See also Baguio Country Club Corporation v.
Collector of Internal Revenue, et al., G.R. No. L-11419, April 22,
1959.

^[2] Sec. 7(1), Rep. Act 1125; Blaquera v. Rodriguez, G.R. No.L-11295, March-29,
1958.

^[3] Castro v. Blaquera, G.R. No. L-8429, February 28, 1957, 53 O.G. 2135;
Ledesma v. Court of Tax Appeals, G.R. No.L-11343,
January 29, 1958, 55 O.G. 2883.

^[4] Rules 74-92, now Rules 73-91,
Rules of Court.

^[5] Adapon
v. Maralit, 69 Phil. 383, 387.

^[6] Guzman v. Anog and Anog, 37 Phil.
62.

^[7] Brief for Petitioner, p.
26.

^[8] Collector of Internal Revenue v.
Bautista, G.R. Nos. L-12250 & L-12259, May 27, 1959.

^[9]Gutierrez v. Court of Tax
Appeals, G.R. Nos. L-9738 & L-9771, May 31, 1957.

^[10] Perez v. Court of Tax Appeals,
G.R. No. L-9738, May 31, 1957

^[11] Jacob Mertens, Jr., The Law
of Federal Income Taxation, 1958 ed., Vol. 10, Section
57.13.

^[12] Articles 1011-1014, Civil Code;
Rule 91, Rules of Court.

^[13] Florsheim Brothers Dry-Goods Company, Ltd. v. United States,
280 US 453, 74 L. ed. 542. See also Commissioner v. Lane-Wells Co., 321 US 219,
88 L. ed. 684; Rockland & Rockport Lime Corporation v. Ham, 38 F 2d 239
(D.C.S.D. Main, 1930); Dubuque Packing Co. v. US, 126 F. Supp. 796 (D.C.N.D.
Iowa, 1954).

^[14] Florsheim Brothers Dry-Goods Company, Ltd. v. United States,
280 U.S. 453, 74 L. ed. 542, 547.

^[15] Republic of the Philippines v.
Lim De Yu, G.R. No. L-17438, April 30, 1964.

[16] Taligaman Lumber Co. v. Collector of Internal Revenue, G.R.
No. L-15717, March 31, 1962; Tan Tiong Bio, et al. v.
Commissioner of Internal Revenue, G.R. No. L-15778, April 23, 1962.