PABLO LORENZO, AS TRUSTEE OF THE ESTATE OF THOMAS HANLEY, DECEASED, PLAINTIFF AND APPELLANT, VS. JUAN POSADAS, JR., COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT.

On October 4, 1932, the plaintiff, Pablo
Lorenzo in his capacity as trustee of the estate of Thomas Hanley,
deceased, brought action in the Court of First Instance of Zamboanga
against the defendant, Juan Posadas, jr., then the Collector of Internal
Revenue, for the refund 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. From the decision of the Court
First instance of Zamboanga dismissmg both the plaintiff’s complaint
and the defendant’s counterclaim, both parties appealed to this court.

It appears that on May 27,1922, one Thomas Hanley died in
Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable
amount of real and personal properties. On June 14, 1922, proceedings
for the probate of his will and the settlement and distribution of his
estate were begun in the Court of First Instance of Zamboanga. The will
was admitted to probate. Said will provides, among other things, as
follows:

“4. I direct that any money left by me be given to my nephew Matthew Haney,

“5. I direct that all real estate owned by me at the time of my death
be not sold or otherwise disposed of for a period of ten (10) years
after my death, and that the same be handled and managed by my
executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland,
and that he be directed that the same be used only for the education of
my brother’s children and their descendants.

“6. I direct
that ten (10) years after my death my property be given to the above
mentioned Matthew Hanley to be disposed of in the way he thinks most
advantageous.

* * * * * * *

“8. I state that at this time I have one brother
living, named Malachi Hanley, and that my nephew, Matthew Hanley, is a
son of my said brother, Malachi Hanley.”

The Court of First Instance of. Zamboanga considered it proper for
the best interest of the estate to appoint a trustee to administer the
real properties which, under the will, were to pass to Matthew Hanley
ten years after the testator’s death. Accordingly, P. J. M. Moore, one
of the two executors named in the will, was, on March 8, 1924,
appointed trustee. Moore took his oath of office and gave bond on
March 10, 1924. He acted as trustee until February 29, 1932, when he
resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant
Collector of Internal Revenue, alleging that the estate left by the
deceased at the time of his death consisted of realty valued at P27,920
and personalty valued at P1,465, and allowing a deduction of P480.81,
assessed against the estate an inheritance tax in the amount of
P1,434.24 which, together with the penalties for delinquency in payment
consisting of a 1 per cent monthly interest from July 1, 1931 to the
date of payment and a surcharge of 25 per cent on the tax, amounted to
P2,052.74. On March 15, 1932, the defendant filed a motion in the
testamentary proceedings pending before the Court of First Instance of
Zamboanga (Special proceedings No. 302) praying that the trustee,
plaintiff herein, be ordered to pay to the Government the said sum of
P2,052.74. The motion was grants ed. On September 15, 1932, the
plaintiff paid this amount under protest, notifying the defendant at
the same time that unless the amount was promptly refunded suit would
be brought for its recovery. The defendant overruled the plaintiff’s
protest and refused to refund the said amount or any part thereof. His
administrative remedies exhausted, plaintiff went to court with the
result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

“I. In holding that the real property of Thomnas
Hanley, deceased, passed, to his instituted heir, .Matthew Hanley, from
the moment of the death of the former, and that from that time, the
latter became the owner thereof.

“II. In holding, in effect, that there was delinquency in the payment of inheritance tax due on the estate of said deceased.

“III. In holding that the inheritance tax in question be based upon the
of the estate upon the death of the testator, and not, as it should
have been held, upon the value thereof at the expiration of the period
of ten years after which, according to the testator’s will, the
property could be and was to be delivered to the instituted heir.

“IV. In not allowing as lawful deductions, in the determination of the
net amount of the estate subject to said tax, the amounts allowed by
the court as compensation to the ‘trustees’ and paid to them from the
decedent’s estate.

“V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.”

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:

“The lower court erred in not ordering the
plaintiff to pay to the defendant the sum of P1,191.27, representing
part of the interest at the rate of 1 per cent per month from April 10,
1924, to June 30, 1931, which the plaintiff had failed to pay on the
inheritance tax assessed by the defendant against the estate of Thomas
Hanley.”

The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b)
Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator’s death, or on its value ten years
later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? (d)
What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the taxpayer be given retroactive effect? (e) Has
there been delinquency in the payment of the inheritance tax? If so,
should the additional interest claimed by the defendant in his appeal
be paid by the estate? Other points of incidental importance, raised
by the parties in their briefs, will be touched upon in the course of
this opinion.

(a) The accrual of the inheritance tax is distinct from
the obligation to pay the same. Section 1536 as amended, of the
Administrative Code, imposes the tax upon “every transmission by virtue
of inheritance, devise, bequest, gift mortis causa, or
advance in anticipation of inheritance, devise, or bequest.” The tax
therefore is upon transmission or the transfer or devolution of
property of a decedent, made effective by his death. (61 C. J., p.
1592.) It is in reality an exise or privilege tax imposed on the right
to succeed to, receive, or take property by or under a will or the
intestacy law, or deed, grant, or gift to become operative at or after
death. According to article 657 of the Civil Code, “the rights to the
succession of a person are transmitted from the moment of his death.”
“In other words”, said Arellano, C. J., “* * * the heirs succeed
immediately to all of the property of the deceased ancestor. The
property belongs to the heirs at the moment of the death of the
ancestor as completely as if the ancestor had executed and delivered to
them a deed for the same before his, death.” (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suiliong & Co. vs. Chio-Taysan, 12 Phil., 13; Lubricous. Arbado, 12 Phil., 391; Inocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs. Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frontlosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil, 434; Bowa vs. Briones, 38 Phil., 276; Osorio vs. Osorio & Ynchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil. 396; Baun vs.
Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while
article 657 of the Civil Code is applicable to testate as well as
intestate succession, it operates only in so far as forced heirs are
concerned. But the language of article 657 of the Civil Code is broad
and makes no distinction between different classes of heirs. That
article does not speak of forced heirs; it does not even use the word
“heir”. It speaks of the rights of succession and of the transmission
thereof from the moment of death. The provision of section 625 of the
Code of Civil Procedure regarding the authentication and probate of a
will as a necessary condition to effect transmission of property does
not affect the general rule laid down in article 657 of the Civil Code.
The authentication of a will implies its due execution but once
probated and allowed the transmission is effective as of the death of
the testator in accordance with article 657 of the Civil Code. Whatever
may be the time when actual transmission of the inheritance takes
place, succession takes place in any event at the moment of the
decedent’s death. The time when the heirs legally succeed to the
inheritance may differ from the time when the heirs actually receive
such inheritance. “Poco importa”, says Manresa commenting on article 657 of the Civil Code, “que
desde el fallecimiento del causante, hasta que el heredero a legatario
entre en posesion de los bienes de la herenda o del legado, transcurra
mucho o poco tiempo, pues la adqmsicion ha de retrotraerse al momento
de la muerte, y asi lo ordena el articulo 989, que debe considerarse
como complemento del presente.” (5 Manresa, 305; see also, art.
440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922,
the inheritance tax accrued as of that date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it
does not follow that the obligation to pay the tax arose as of that
date. The time for the payment of inheritance tax is clearly fixed by
section 1544 of the Revised Administrative Code as amended by Act No.
3031, in relation to section 1543 of the same Code. The two sections
follow:

“SEC. 1543. Exemption of certain acquisitions and transmissions.—The following shall not be taxed:

“(a) The merger of the usufruct in the owner of the naked title.

“(b) The transmission or; delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees.

“(c)
The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor.

“In the last two cases, if the scale of taxation appropriate to the
new beneficiary is greater than that paid by the first, the former must
pay the difference,

“SEC. 1544. When tax to be paid.—The tax fixed in this article1 shall be paid:

“(a) In the second and third cases of the next preceding section, before entrance into possession of the property.

“(b)
In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings
shall be instituted prior to the expiration of said period, the payment
shall be made by the executor or administrator before delivering to
each beneficiary his share.

“If the tax is not paid within
the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and
interest due and unpaid within ten days after the date of notice and
demand thereof by the Collector, there shall be further added a
surcharge of twenty-five per centum.

“A certified copy of
all letters testamentary or of administration shall he furnished the
Collector of Internal Revenue by the Clerk of Court within thirty days
after their issuance.”

It should be observed in passing that the word “trustee”, appearing in subsection (b) of section 1543, should read “fideicommissary” or “cestui que trust”. There was an obvious mistake in translation from the Spanish to the English version.

The instant case does not fall under subsection (a), but under subsection (b),
of section 1544 above-quoted, as there is here no fiduciary heir, first
heir, legatee or donee. Under that subsection, the tax should have been
paid before the delivery of the properties in question to P. J. M.,
Moore as trustee on March 10, 1934.

(b) The plaintiff contends that the estate of Thomas
Hanley, in so far as the real properties are concerned, did not and
could not legally pass to the instituted heir, Matthew Hanley, until
after the expiration of ten years from the death of the testator on May
27, 1922 and, that the inheritance tax should be based on the value of
the estate in 1932, or ten years after the testator’s death. The
plaintiff introduce evidence tending to show that in 1932 the real
properties in question had a reasonable value of only P5,787. This
amount added to the value of the personal property left by the
deceased, which the plaintiff admits is P1,465, would generate an
inheritance tax which, excluding deductions, interest and surcharge,
would amount only to about P169.52.

If death is the generating source from which the power of the state
to impose inheritence taxes takes its being and if, upon the death of. the decedent, succession takes place and the right of the
state to tax, vesta instantly, the tax should be measured by the value
of the of the estate as it stood at the time of the decedent’s deaths
regardless of any subsequent contegency affecting value or any
subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26
R. C. C.J. p. 232; Blakemore and Bancroft, Inheritance Taxes, p, 137.
See also Knowlton vs. Moore, 178 U. S., 41; 20 Sup. Ct. Kep.,
747; 44 Law. ed., 969.) “The right of the state to an inheritance tax
accrues at the moment of death, and hence is ordinarily measured as to
any beneficiary by the value at that time of such property as passes to
him. Subsequent appreciation or depreciation is immaterial.” (Ross,
Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in
Cyclopedia of Law and Procedure (vol. 37, pp. 1574, 1575) that, in the
case of contingent remainders, taxation is postponed until the estate
vests in possession or the contingency is settled. This rule was
formerly followed in New York and has been adopted in Illinois,
Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule,
however, is by no means entirely satisfactory either to the estate or
to those interested in the property (26 R. C. L., p. 231). Realizing,
perhaps, the defects of its anterior system, we find upon examination
of cases and authorities that New York has varied and now requires the
immediate appraisal of the postponed estate at its clear market value
arid the payment forthwith of the tax on it out of the corpus
of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N, E.,
782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate
of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y.,
609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp.,
1079. Vide also, Saltoun vs. Lord Advocate, 1 Pater.
Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California
adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a
transmission by inheritance is taxable at the time of the predecessor’s
death, notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary, and the tax measured by the
value of the property transmitted at that time regardless of its
appreciation or depreciation.

(c) Certain items are required by law to be deducted from
the appraised gross value in arriving at the net value of the estate on
which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial
court allowed a deduction of only P480.81. This sum represents the
expenses and disbursements of the executors until March 10,1924, among
which were their fees and the proven debts of the deceased. The
plaintiff contends that the compensation and fees of the trustees,
which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN,
00), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: “In order to
determine the net sum which must bear the tax, when an inheritance is
concerned, there shall be deducted, in case of a resident, * * * the
judicial expenses of the testamentary or intestate proceedings, * * *.”

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs.
Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not
follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax. There is no
statute in the Philippines which requires trustees’ commissions to be
deducted in determining the net value of the estate subject to
inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary
trust has been created, it does not appear that the testator intended
that the duties of his executors and trustees should be separated.
(Ibid.; In re Vanneck’s Estate, 161 N. Y. Supp., 893; 175 App, Div., 363; In re
Collard’s Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph
5 of his will, the testator expressed the desire that his real estate
be handled and managed by his executors until the expiration of the
period of ten years therein provided. Judicial expenses are expenses of
administration (61 C. J., p. 1705) but, in State vs. Hennepin
County Probate Court (112 N. W.f, 878; 101 Minn., 485), it was said: “*
* * The compensation of a trustee, earned, not in the administration of
the estate, but in the management thereof for the benefit of the
legatees or devisees, does not come properly within the class or reason
for exempting administration expenses. * * * Services rendered in that
behalf have no reference to closing the estate for the purpose of a
distribution thereof to those entitled to it, and are not required or
essential to the perfection of the rights of the heirs or legatees. * *
* Trusts * * * of the character of that here before the court, are
created for the benefit of those to whom the property ultimately
passes, are of voluntary creation, and intended for the preservation of
the estate. No sound reason is given to support the contention that
such expenses should be taken into consideration in fixing the value of
the estate for the purpose of this tax.”

(d) The defendant levied and assessed the inheritance tax
due from the estate of Thomas Hanley under the provisions of section
1544 of the Revised Administrative Code, as amended by section 3 of Act
No. 3606. But Act No. 3606 went into effect on January 1, 1930. It,
therefore was not the law in force when the testator died on May 27,
1922. The law at that time was section 1544 abovementioned, as amended
by Act No. 3031, which took effect On March 9, 1922.

It is well-settled that inheritance taxation is governed by the
statute in force at the time of the death of the decedent (26 R. C. L.,
p. 206; 4 Cooley on Taxation, 4th edi, p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending
measures, Of course, a tax statute may be made retroactive in its
operation. Liability for taxes under retroactive legislation has been
“one of the incidents of social life.” (Seattle vs. Kelleher,
195 U. S., 351, 360; 49 Law. ed;, 232; 25 Sup. Ct. Rep., 44.) But
legislative intent that a tax statute should operate retroactively
should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co,, 20 Wall., 323; Lunch vs.
Turrish, 247 U. S., 221.) “A statute should be considered as
prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or
expresses that it shall have a retroactive effect, * * *.” (61 C. J.,
p. 1602.) Though the last paragraph of section 5 of Regulations No. 65
of the Department of Finance makes section 3 of Act No. 3606, amending
section 1544 of the Revised Administrative Code, applicable to all
estates the inheritance taxes due from which have not been paid, Act
No. 3606 itself contains no provisions indicating legislative intent to
give it retroactive effect. No such effect can be given the statute by
this court.

The defendant Collector of Internal Revenue maintains, however,
that certain provisions of Act No. 3606,are,more favorable to the
taxpayer than those of Act No: 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in conformity with
the provisions of article 22 of the Revised Penal Code, This is the
reason why he applied Act No. 3606 instead of Act No. 3031. Indeed,
under Act No. 3606, (1) the surcharge of 25 per cent is based on the
tax only, instead of; on both the tax and the interest, as provided for
in, Act No. 3031, and. (2) the taxpayer is allowed twenty days from,
notice and demand by the Collector of Internal: Revenue within which to
pay the tax, instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment
for an offense committed against the; state which, under the
Constitution, the Executive has the power to pardon. In common use,
however,’ this sense .has been enlarged to include within the term
“penal statutes” all statutes which command or prohibit certain acts,
and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their
commission (59 C. J., p. 1110); Revenue laws generally, which impose
taxes collected by the means ordinarily resorted to for the collection
of taxes are not classed as penal laws, although there are authorities
to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs.
Wheeler, 44 P,, 430; 25 Nev., 143.) Article 22 of the Revised Penal
Code is not applicable to the case at bar, and in the absence of clear
legislative intent, we cannot give Act No. 3606 a’ retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax
may arise at a certain time and the tax may be paid within another
given time. As stated by this court, “the mere failure to pay one’s
tax does not render one delinquent until and unless the entire period
has elapsed within which the taxpayer is authorized by law to make such
payments without being subjected to the payment of penalties for
failure to pay his taxes within the prescribed period.” (U. S. vs. Labadan, 26 Phil., 239.)

The defendant maintains that it was the duty of the executor to pay
the inheritance tax before the delivery wise, the defendant contends
that delivery to the trustee was delivery to the cestui que trust,
the beneficiary in this case, within the meaning of the first paragraph
of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. The appointment of P.
J. M. Moore as trustee was made by the trial court in conformity with
the wishes of the testator as expressed in his will. It is true that
the word “trust” is not mentioned or used in the will but the intention
to create one is clear. No particular or technical words are required
to create a testamentary trust (69 C. J., p. 711). The words “trust”
and “trustee”, though apt for the purpose, are not necessary. In fact,
the use of these two words is not conclusive on the question that a
trust is created (69 C. J., p. 714). “To create a trust by will the
testator must indicate in the will his intention so to do by using
language sufficient to separate the legal from the equitable estate,
and with sufficient certainty designate the beneficiaries, their
interest in the trust, the purpose or object of the trust; and the
property or subject matter thereof. Stated otherwise, to constitute a
valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite
subject; (3) a certain or ascertained object; statutes in some
jurisdictions expressly or in effect so providing.”(69 C. J., pp. 705,
706.) There is no doubt that the testator intended to create a trust. He
ordered in his will that certain of his properties be kept together
undisposed during a fixed period, for a stated purpose. The probate
court certainly exercised sound judgment in appointing a trustee to
carry into effect the provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date the
trust estate vested in him (sec. 582 in relation to sec. 590, Code of
Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance
tax laws or exempt it from the payment of the inheritance tax. The
corresponding inheritance tax should have been paid on or before March
10, 1924, to escape the penalties of the law. This is so for the reason
already stated that the delivery of the estate to the trustee was in esse delivery of the estate to the cesiui que trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs.
King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When
Moore accepted the trust and took possession of the trust estate he
thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs.
Vitug, 39 Phil., 126, cited in 65 C. J., p. 692, n. 63). He. did not
acquire any beneficial interest in the estate. He took such legal
estate only as the proper execution of the trust required (65 C. J., p.
528) and, his estate ceased upon the fulfillment of the testator’s
wishes. The estate then vested absolutely in the beneficiary (65 C. J.,
p. 542).

The highest considerations of public policy also justify the
conclusion we have reached. Were we to hold that the payment of the tax
could be postponed or delayed by the creation of a trust of the type at
hand, the result would be plainly disastrous. Testators may provide, as
Thomas Hanley has provided, that their estates be not delivered to
their beneficiaries until after the lapse of a certain period of time.
In the case at bar, the period is ten years. In other cases, the
trust may last for fifty years, or for a longer period which does not
offend the  rule against perpetuities. The collection of the tax would
then be left to the will of a private individual. The mere suggestion
of this result is a sufficient warning against the acceptance of the
contention of the plaintiff in the case at bar. Taxes are essential to
the very existence of government. (Dobbins vs. Erie County, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs.
Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County m Oregon, 7
Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed,, 150; Charles River Bridge vs.
Warren Bridge, 11 Pet, 420; 9 Law. ed., 773.) The obligation to pay
taxes rests not upon the privileges enjoyed by, or the protection
afforded to, a citizen by the government, but upon the necessity of
money for the support of the state (Bobbins vs. Erie County, supra).
For this reason, no one is allowed to object to or resist the payment
of taxes solely because no personal benefit to him can be pointed out.
(Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed.,
740.) While courts will not enlarge, by construction, the government’s
power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74
Law. ed., 226; 50, Sup. Ct. Rep., 46) they also will not place upon tax
laws so loose a construction as to permit evasions on merely fanciful
and insubstantial distinctions. (XL S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U, S. vs. Wigglesworth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Munoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs.
Trinidad, 43 Phil., 803.) When proper tax statue should be construed to
avoid the possibilities of tax evasion. Constructed this way , the
statue, withouTresuTting in injustice to the taxpayer, becomes fair to
the government.

That taxes must be collected promptly is a policy deeply intrenched
in our tax system. Thus, no court is allowed to grant injunction to
restrain the collection of any internal revenue tax (sec. 1578, Revised
Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occasion to demonstrate
trenchant adherence to this policy of the law. It held that “the fact
that on account of riots directed against the Chinese on October 18,
19, and 20, 1924, they were prevented from paying their internal
revenue taxes on time and by mutual agreement closed their homes and
stores and remained therein, does not authorize the Collector of
Internal Revenue to extend the time prescribed for the payment of the
taxes or to accept them without v the additional penalty of twenty five
per cent.” (Syllabus, No. 3.) “* * * It is of the utmost importance,”
said the Supreme Court of the United States, “* * * that the modes
adopted to enforce the taxes levied should be interfered with as little
as possible. Any delay in the proceedings of the officers, upon whom
the duty is devolved of collecting the taxes, may derange the
operations of government, and thereby cause serious detriment to the
public.” (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil, 580.)

It results that the estate which plaintiff represents has been
delinquent in the payment of inheritance tax and, therefore, liable for
the payment of interest and surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date
when Moore became trustee. The interest due should be computed from
that date and it is error on the part of the defendant to compute it
one month later. The provision of law requiring the payment of interest
in appropriate cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra)
, and neither the Collector of Internal Revenue nor this court may
remit or decrease such interest, no matter how heavily it may burden
the taxpayer.

To the tax and interest due and unpaid within ten days after the
date of notice and demand thereof by the Collector of Internal Revenue,
a surcharge of twenty-five per centum should be added (sec. 1544,
subsec. (6), par. 2, Revised Administrative Code). Demand was made by
the Deputy Collector of Internal Revenue upon Moore in a communication
dated October 16, 1931 (Exhibit 29). The date fixed for the payment of
the tax and interest was November 30, 1931. November 30 being an
official holiday, the tenth day fell on December 1, 1931. As the tax and
interest due were not paid on that date, the estate became liable for
the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief.

We shall now compute the tax, together with the interest and
surcharge, due from the estate of Thomas Hanley in accordance with the
conclusions we have reached.

At the time of his death, the deceased left real properties valued
at P27,920 and personal properties worth P1,465, or a total of P29,385.
Deducting from this amount the sum of P480.81, representing allowable
deductions under section 1539 of the Revised Administrative Code, we
have P28,904.19 as the net value of the estate subject to inheritance
tax.

The primary tax, according to section 1536, subsection (c),
of the Revised Administrative Code, should be imposed at the rate of
one per centum upon the first ten thousand pesos and two per centum
upon the amount by which the share of the beneficiary exceeds ten
thousand pesos but does not exceed thirty thousand pesos, plus an
additional two hundred per centum. One per centum of ten thousand pesos
is P100. Two per centum of P18,904.19 is P378.08. Adding to these two
sums an additional two hundred per centum, or P956.16, we have as
primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums
collectible under section 1544 of the Revised Administrative Code.
First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of
delinquency, to September 15, 1032, the date of payment under protest,
a period covering 8 years, 6 months and 5 days. To the tax and interest
thus computed should be added the sum of P724.88, representing a
surcharge of 25 per cent on both the tax and interest, and also P10,
the compromise sum fixed by the defendant (Exh. 29), giving a grand
total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the
sum of P1,581.69 is legally due from the estate. This last sum is
P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he
claims, we must hold that the plaintiff is liable only in the sum of
P1,191.27, the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered.

Avancena, C. J., Ahad Santos, Imperial, Diaz, and Concepcion, JJ., concur.

VILLA-REAL, J.:

I concur in the result.