BA 128 Readings

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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-13250 October 29, 1971

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.

ANTONIO CAMPOS RUEDA, respondent..

Assistant Solicitor General Jose P. Alejandro and Special Attorney Jose G.

Azurin, (O.S.G.) for petitioner.

Ramirez and Ortigas for respondent.

FERNANDO,J.:

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 so 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 1is 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 itsterms.

2Accordingly, 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 Doa

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 P161,874.95 as deficiency estate and inheritance

taxes, including interest 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."3Then 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 state and inheritance taxes in the respective amounts of P111,592.48 and

P157,791.48, or a total of P369,383.96 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,


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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 requested 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, respondentdenied 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 insisting 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

upon intangible person 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

order to entitle the petitioner to the exemption benefits of the proviso of

Section 122 of our Tax. Code."5

Hence appeal to this court by petitioner. The respective briefs of the parties

duly submitted, but as above indicated, instead of ruling definitely on the

question, this Court, on May 30, 1962, resolve to inquire further into the

question of reciprocity and sent back the case to the Court of Tax Appeals for

the motion 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 Tangiergrant 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 proof on whether or not the words `bienes

muebles', 'movables' and 'movable properties as used in the Tangier laws,

include or embrace 'intangible person property', as used in the Tax

Code." 6In 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 byreason 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 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 person property 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


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whether or not as vigorously insisted upon by petitioner the acquisition of

internal 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

penalties 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

do 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 the 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 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 sense, did fall under

this exempt category. So it appears in an opinion of the Court by the then

Acting Chief Justicem Bengson 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 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 Liechtestein when he passed

away."20

Then came this definitive ruling: "The Collector hereafter named

the respondent cites decisions of the United States Supreme Court and of

this Court, holding that intangible personal property in the Philippines

belonging to a non-resident 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, Villamor and Makasiar, JJ.,

concur.


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

Teehankee and Barredo, JJ., took no part.


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SUPREME COURT

Manila

EN BANC

G.R. No. L-34937 March 13, 1933

CONCEPCION VIDAL DE ROCES and her husband,

MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,

vs.

JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.

Feria and La O for appellants.

Attorney-General Jaranilla for appellee.

IMPERIAL,J.:

The plaintiffs herein brought this action to recover from the defendant,

Collector of Internal Revenue, certain sums of money paid by them under

protest as inheritance tax. They appealed from the judgment rendered by

the Court of First Instance of Manila dismissing the action, without costs.

On March 10 and 12, 1925, Esperanza Tuazon, by means of public

documents, donated certain parcels of land situated in Manila to the

plaintiffs herein, who, with their respective husbands, accepted them in the

same public documents, which were duly recorded in the registry of deeds.

By virtue of said donations, the plaintiffs took possession of the said lands,

received the fruits thereof and obtained the corresponding transfer

certificates of title.

On January 5, 1926, the donor died in the City of Manila without leaving any

forced heir and her will which was admitted to probate, she bequeathed to

each of the donees the sum of P5,000. After the estate had been distributed

among the instituted legatees and before delivery of their respective shares,

the appellee herein, as Collector of Internal Revenue, ruled that the

appellants, as donees and legatees, should pay as inheritance tax the sums of

P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was levied

as tax on the donation to Concepcion Vidal de Roces and P1,481.52 on her

legacy, and, likewise, P12,388.95 was imposed upon the donation made to

Elvira Vidal de Richards and P1,462.50 on her legacy. At first the appellants

refused to pay the aforementioned taxes but, at the insistence of the

appellee and in order not to delay the adjudication of the legacies, they

agreed at last, to pay them under protest.

The appellee filed a demurrer to the complaint on the ground that the facts

alleged therein were not sufficient to constitute a cause of action. After the

legal questions raised therein had been discussed, the court sustained the

demurrer and ordered the amendment of the complaint which the

appellants failed to do, whereupon the trial court dismissed the action on

the ground that the aforementioned appellants did not really have a right

of action.

In their brief, the appellants assign only one alleged error, to wit: that thedemurrer interposed by the appellee was sustained without sufficient

ground.

The judgment appealed from was based on the provisions of section 1540

Administrative Code which reads as follows:

SEC. 1540.Additions of gifts and advances. After the aforementioned

deductions have been made, there shall be added to the resulting amount

the value of all gifts or advances made by the predecessor to any those who,

after his death, shall prove to be his heirs, devisees, legatees, or

donees mortis causa.

The appellants contend that the above-mentioned legal provision does not

include donations inter vivos and if it does, it is unconstitutional, null and

void for the following reasons: first, because it violates section 3 of the Jones

Law which provides that no law should embrace more than one subject, and

that subject should be expressed in the title thereof; second that the

Legislature has no authority to impose inheritance tax on donations inter

vivos; and third, because a legal provision of this character contravenes the


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fundamental rule of uniformity of taxation. The appellee, in turn, contends

that the words "all gifts" refer clearly to donations inter vivos and, in support

of his theory, cites the doctrine laid in the case ofTuason and Tuason vs.

Posadas (54 Phil., 289). After a careful study of the law and the authorities

applicable thereto, we are the opinion that neither theory reflects the true

spirit of the aforementioned provision. The gifts referred to in section 1540

of the Revised Administration Code are, obviously, those donations intervivos that take effect immediately or during the lifetime of the donor but are

made in consideration or in contemplation of death. Gifts inter vivos, the

transmission of which is not made in contemplation of the donor's death

should not be understood as included within the said legal provision for the

reason that it would amount to imposing a direct tax on property and not on

the transmission thereof, which act does not come within the scope of the

provisions contained in Article XI of Chapter 40 of the Administrative Code

which deals expressly with the tax on inheritances, legacies and other

acquisitions mortis causa.

Our interpretation of the law is not in conflict with the rule laid down in the

case ofTuason and Tuason vs. Posadas, supra. We said therein, as we say

now, that the expression "all gifts" refers to gifts inter vivos inasmuch as the

law considers them as advances on inheritance, in the sense that they are

gifts inter vivos made in contemplation or in consideration of death. In that

case, it was not held that that kind of gifts consisted in those made

completely independent of death or without regard to it.

Said legal provision is not null and void on the alleged ground that thesubject matter thereof is not embraced in the title of the section under

which it is enumerated. On the contrary, its provisions are perfectly

summarized in the heading, "Tax on Inheritance, etc." which is the title of

Article XI. Furthermore, the constitutional provision cited should not be

strictly construed as to make it necessary that the title contain a full index to

all the contents of the law. It is sufficient if the language used therein is

expressed in such a way that in case of doubt it would afford a means of

determining the legislators intention. (Lewis' Sutherland Statutory

Construction, Vol. II, p. 651.) Lastly, the circumstance that the Administrative

Code was prepared and compiled strictly in accordance with the provisions

of the Jones Law on that matter should not be overlooked and that, in a

compilation of laws such as the Administrative Code, it is but natural and

proper that provisions referring to diverse matters should be found. (Ayson

and Ignacio vs. Provincial Board of Rizal and Municipal Council of Navotas, 39

Phil., 931.)

The appellants question the power of the Legislature to impose taxes on the

transmission of real estate that takes effect immediately and during the

lifetime of the donor, and allege as their reason that such tax partakes of the

nature of the land tax which the law has already created in another part of

the Administrative Code. Without making express pronouncement on this

question, for it is unnecessary, we wish to state that such is not the case in

these instance. The tax collected by the appellee on the properties donated

in 1925 really constitutes an inheritance tax imposed on the transmission of

said properties in contemplation or in consideration of the donor's death and

under the circumstance that the donees were later instituted as the former's

legatees. For this reason, the law considers such transmissions in the form of

gifts inter vivos, as advances on inheritance and nothing therein violates any

constitutional provision, inasmuch as said legislation is within the power of

the Legislature.

Property Subject to Inheritance Tax. The inheritance tax ordinarily applies

to all property within the power of the state to reach passing by will or the

laws regulating intestate succession or by gift inter vivos in the manner

designated by statute, whether such property be real or personal, tangible orintangible, corporeal or incorporeal. (26 R.C.L., p. 208, par. 177.)

In the case ofTuason and Tuason vs. Posadas, supra, it was also held that

section 1540 of the Administrative Code did not violate the constitutional

provision regarding uniformity of taxation. It cannot be null and void on this

ground because it equally subjects to the same tax all of those donees who

later become heirs, legatees or donees mortis causa by the will of the donor.

There would be a repugnant and arbitrary exception if the provisions of the

law were not applicable to all donees of the same kind. In the case citedabove, it was said: "At any rate the argument adduced against its


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constitutionality, which is the lack of Uniformity, does not seem to be well

founded. It was said that under such an interpretation, while a donee inter

vivos who, after the predecessor's death proved to be an heir, a legatee, or a

donee mortis causa, would have to pay the tax, another donee inter

vivos who did not prove to he an heir, a legatee, or a donee mortis causa of

the predecessor, would be exempt from such a tax. But as these are two

different cases, the principle of uniformity is inapplicable to them."

The last question of a procedural nature arising from the case at bar, which

should be passed upon, is whether the case, as it now stands, can be decided

on the merits or should be remanded to the court a quo for further

proceedings. According to our view of the case, it follows that, if the gifts

received by the appellants would have the right to recover the sums of

money claimed by them. Hence the necessity of ascertaining whether the

complaint contains an allegation to that effect. We have examined said

complaint and found nothing of that nature. On the contrary, it be may be

inferred from the allegations contained in paragraphs 2 and 7 thereof that

said donations inter vivos were made in consideration of the donor's death.

We refer to the allegations that such transmissions were effected in the

month of March, 1925, that the donor died in January, 1926, and that the

donees were instituted legatees in the donor's will which was admitted to

probate. It is from these allegations, especially the last, that we infer a

presumption juris tantum that said donations were made mortis causa and,

as such, are subject to the payment of inheritance tax.

Wherefore, the demurrer interposed by the appellee was well-foundedbecause it appears that the complaint did not allege fact sufficient to

constitute a cause of action. When the appellants refused to amend the

same, spite of the court's order to that effect, they voluntarily waived the

opportunity offered them and they are not now entitled to have the case

remanded for further proceedings, which would serve no purpose altogether

in view of the insufficiency of the complaint.

Wherefore, the judgment appealed from is hereby affirmed, with costs of

this instance against the appellants. So ordered.

Avancea, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ.,

concur.

Separate Opinions

VILLA-REAL,J., dissenting:

I sustain my concurrence in Justice Street's dissenting opinion in the case

ofTuason and Tuason vs. Posadas (54 Phil., 289).

The majority opinion to distinguish the present case from above-mentioned

case ofTuason and Tuason vs. Posadas, by interpreting section 1540 of the

Administrative Code in the sense that it establishes the legal

presumption juris tantum that all gifts inter vivos made to persons who are

not forced heirs but who are instituted legatees in the donor's will, havebeen made in contemplation of the donor's death. Presumptions are of two

kinds: One determined by law which is also called presumption of law or of

right; and another which is formed by the judge from circumstances

antecedent to, coincident with or subsequent to the principal fact under

investigation, which is also called presumption of man (presuncion de

hombre). (Escriche, Vol. IV, p. 662.) The Civil Code as well as the code of Civil

Procedure establishes presumptions juris et de jure and juris tantum which

the courts should take into account in deciding questions of law submitted to

them for decision. The presumption which majority opinion wishes to drawfrom said section 1540 of the Administrative Code can neither be found in

this Code nor in any of the aforementioned Civil Code and Code of Civil

Procedure. Therefore, said presumption cannot be called legal or of law.

Neither can it be called a presumption of man (presuncion de

hombre) inasmuch as the majority opinion did not infer it from

circumstances antecedent to, coincident with or subsequent to the principal

fact with is the donation itself. In view of the nature, mode of making and

effects of donations inter vivos, the contrary presumption would be more

reasonable and logical; in other words, donations inter vivos made to


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persons who are not forced heirs, but who are instituted legatees in the

donor's will, should be presumed as not made mortis causa, unless the

contrary is proven. In the case under consideration, the burden of the proof

rests with the person who contends that the donation inter vivos has been

made mortis causa.

It is therefore, the undersigned's humble opinion that the order appealed

from should be reversed and the demurrer overruled, and the defendant

ordered to file his answer to the complaint.

Street, J., concurs.


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SUPREME COURT

Manila

EN BANC

G.R. No. L-36770 November 4, 1932

LUIS W. DISON, plaintiff-appellant,

vs.

JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Marcelino Aguas for plaintiff-appellant.

Attorney-General Jaranilla for defendant-appellant.

BUTTE,J.:

This is an appeal from the decision of the Court of First Instance of

Pampanga in favor of the defendant Juan Posadas, Jr., Collector of Internal

Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the recovery of an

inheritance tax in the sum of P2,808.73 paid under protest. The petitioner

alleged in his complaint that the tax is illegal because he received the

property, which is the basis of the tax, from his father before his death by a

deed of gift inter vivos which was duly accepted and registered before the

death of his father. The defendant answered with a general denial and with a

counterdemand for the sum of P1,245.56 which it was alleged is a balance

still due and unpaid on account of said tax. The plaintiff replied to the

counterdemand with a general denial. The courta quo held that the cause of

action set up in the counterdemand was not proven and dismissed the same.

Both sides appealed to this court, but the cross-complaint and appeal of the

Collector of Internal Revenue were dismissed by this court on March 17,

1932, on motion of the Attorney-General.1awphil.net

The only evidence introduced at the trial of this cause was the proof of

payment of the tax under protest, as stated, and the deed of gift executed by

Felix Dison on April 9, 1928, in favor of his sons Luis W. Dison, the plaintiff-

appellant. This deed of gift transferred twenty-two tracts of land to the

donee, reserving to the donor for his life the usufruct of three tracts. This

deed was acknowledged by the donor before a notary public on April 16,

1928. Luis W. Dison, on April 17, 1928, formally accepted said gift by an

instrument in writing which he acknowledged before a notary public on April

20, 1928.

At the trial the parties agreed to and filed the following ingenious

stipulation of fact:

1. That Don Felix Dison died on April 21, 1928;

2. That Don Felix Dison, before his death, made a gift inter vivos in favor of

the plaintiff Luis W. Dison of all his property according to a deed of gift

(Exhibit D) which includes all the property of Don Felix Dizon;

3. That the plaintiff did not receive property of any kind of Don Felix Dison

upon the death of the latter;

4. That Don Luis W. Dison was the legitimate and only child of Don Felix

Dison.

It is inferred from Exhibit D that Felix Dison was a widower at the time

of his death.

The theory of the plaintiff-appellant is that he received and holds the

property mentioned by a consummated gift and that Act No. 2601 (Chapter

40 of the Administrative Code) being the inheritance tax statute, does not

tax gifts. The provision directly here involved is section 1540 of the

Administrative Code which reads as follows:

Additions of Gifts and Advances. After the aforementioned

deductions have been made, there shall be added to the resulting amount

the value of all gifts or advances made by the predecessor to any of those

who, after his death, shall prove to be his heirs, devises, legatees, or

donees mortis causa.


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The question to be resolved may be stated thus: Does section 1540 of

the Administrative Code subject the plaintiff-appellant to the payment of an

inheritance tax?

The appellant argues that there is no evidence in this case to support a

finding that the gift was simulated and that it was an artifice for evading the

payment of the inheritance tax, as is intimated in the decision of the court

below and the brief of the Attorney-General. We see no reason why the

court may not go behind the language in which the transaction is masked in

order to ascertain its true character and purpose. In this case the scanty facts

before us may not warrant the inference that the conveyance, acknowledged

by the donor five days before his death and accepted by the donee one day

before the donor's death, was fraudulently made for the purpose of evading

the inheritance tax. But the facts, in our opinion, do warrant the inference

that the transfer was an advancement upon the inheritance which the

donee, as the sole and forced heir of the donor, would be entitled to receive

upon the death of the donor.

The argument advanced by the appellant that he is not an heir of his

deceased father within the meaning of section 1540 of the Administrative

Code because his father in his lifetime had given the appellant all his

property and left no property to be inherited, is so fallacious that the urging

of it here casts a suspicion upon the appellants reason for completing the

legal formalities of the transfer on the eve of the latter's death. We do not

know whether or not the father in this case left a will; in any event, this

appellant could not be deprived of his share of the inheritance because theCivil Code confers upon him the status of a forced heir. We construe the

expression in section 1540 "any of those who, after his death, shall prove to

be his heirs", to include those who, by our law, are given the status and

rights of heirs, regardless of the quantity of property they may receive as

such heirs. That the appellant in this case occupies the status of heir to his

deceased father cannot be questioned. Construing the conveyance here in

question, under the facts presented, as an advance made by Felix Dison to

his only child, we hold section 1540 to be applicable and the tax to have

been properly assessed by the Collector of Internal Revenue.

This appeal was originally assigned to a Division of five but referred to

the court in banc by reason of the appellant's attack upon the

constitutionality of section 1540. This attack is based on the sole ground that

insofar as section 1540 levies a tax upon gifts inter vivos, it violates that

provision of section 3 of the organic Act of the Philippine Islands (39 Stat. L.,

545) which reads as follows: "That no bill which may be enacted into law

shall embraced more than one subject, and that subject shall be expressed inthe title of the bill." Neither the title of Act No. 2601 nor chapter 40 of the

Administrative Code makes any reference to a tax on gifts. Perhaps it is

enough to say of this contention that section 1540 plainly does not tax

gifts per se but only when those gifts are made to those who shall prove to

be the heirs, devisees, legatees or donees mortis causa of the donor. This

court said in the case of Tuason and Tuason vs. Posadas 954 Phil.,

289):lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and

not mortis causa. Both the letter and the spirit of the law leave no room for

any other interpretation. Such, clearly, is the tenor of the language which

refers to donations that took effect before the donor's death, and not

to mortis causadonations, which can only be made with the formalities of a

will, and can only take effect after the donor's death. Any other construction

would virtually change this provision into:

". . . there shall be added to the resulting amount the value of all

gifts mortis causa . . . made by the predecessor to those who, after his death,

shall prove to be his . . . donees mortis causa." We cannot give to the law aninterpretation that would so vitiate its language. The truth of the matter is

that in this section (1540) the law presumes that such gifts have been made

in anticipation of inheritance, devise, bequest, or gift mortis causa, when the

donee, after the death of the donor proves to be his heir, devisee or

donee mortis causa, for the purpose of evading the tax, and it is to prevent

this that it provides that they shall be added to the resulting amount."

However much appellant's argument on this point may fit his preconceived

notion that the transaction between him and his father was a consummated

gift with no relation to the inheritance, we hold that there is not merit in this


11/22

attack upon the constitutionality of section 1540 under our view of the facts.

No other constitutional questions were raised in this case.

The judgment below is affirmed with costs in this instance against the

appellant. So ordered.

Avancea, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial,

JJ., concur.


12/22


SUPREME COURT

Manila

EN BANC

G.R. No. L-34583 October 22, 1931

THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the

late Adolphe Oscar Schuetze,plaintiff-appellant,

vs.

JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.

Araneta, De Joya, Zaragoza and Araneta for appellant.

Attorney-General Jaranilla for appellee.

VILLA-REAL,J.:

The Bank of the Philippine Islands, as administrator of the estate of the

deceased Adolphe Oscar Schuetze, has appealed to this court from the

judgment of the Court of First Instance of Manila absolving the defendant

Juan Posadas, Jr., Collector of Internal Revenue, from the complaint filed

against him by said plaintiff bank, and dismissing the complaint with costs.

The appellant has assigned the following alleged errors as committed

by the trial court in its judgment, to wit:

1. The lower court erred in holding that the testimony of Mrs. Schuetze was

inefficient to established the domicile of her husband.

2. The lower court erred in holding that under section 1536 of the

Administrative Code the tax imposed by the defendant is lawful and valid.

3. The lower court erred in not holding that one-half () of the proceeds of

the policy in question is community property and that therefore no

inheritance tax can be levied, at least on one-half () of the said proceeds.

4. The lower court erred in not declaring that it would be unconstitutional to

impose an inheritance tax upon the insurance policy here in question as it

would be a taking of property without due process of law.

The present complaint seeks to recover from the defendant Juan

Posadas, Jr., Collector of Internal Revenue, the amount of P1,209 paid by the

plaintiff under protest, in its capacity of administrator of the estate of the

late Adolphe Oscar Schuetze, as inheritance tax upon the sum of P20,150,

which is the amount of an insurance policy on the deceased's life, wherein

his own estate was named the beneficiary.

At the hearing, in addition to documentary and parol evidence, both

parties submitted the following agreed statement of facts of the court for

consideration:

It is hereby stipulated and agreed by and between the parties in the above-

entitled action through their respective undersigned attorneys:

1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late

Adolphe Oscar Schuetze, is of legal age, a native of Manila, Philippine Islands,

and is and was at all times hereinafter mentioned a resident of Germany,

and at the time of the death of her husband, the late Adolphe Oscar

Schuetze, she was actually residing and living in Germany;

2. That the Bank of the Philippine Islands, is and was at all times hereinafter

mentioned a banking institution duly organized and existing under and by

virtue of the laws of the Philippine Islands;

3. That on or about August 23, 1928, the herein plaintiff before notary public

Salvador Zaragoza, drew a general power appointing the above-mentioned

Bank of the Philippine Islands as her attorney-in-fact, and among the powers

conferred to said attorney-in-fact was the power to represent her in all legal

actions instituted by or against her;

4. That the defendant, of legal age, is and at all times hereinafter mentioned

the duly appointed Collector of Internal Revenue with offices at Manila,

Philippine Islands;


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5. That the deceased Adolphe Oscar Schuetze came to the Philippine Islands

for the first time of March 31, 1890, and worked in the several German firms

as a mere employee and that from the year 1903 until the year 1918 he was

partner in the business of Alfredo Roensch;

6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the habit

of making various trips to Europe;

7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming from

Java, and with the intention of going to Bremen, landed in the Philippine

Islands where he met his death on February 2, 1928;

8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in

Germany, executed a will, in accordance with its law, wherein plaintiff was

named his universal heir;

9. That the Bank of the Philippine Islands by order of the Court of First

Instance of Manila under date of May 24, 1928, was appointed administrator

of the estate of the deceased Adolphe Oscar Schuetze;

10. That, according to the testamentary proceedings instituted in the Court

of First Instance of Manila, civil case No. 33089, the deceased at the time of

his death was possessed of not only real property situated in the Philippine

Islands, but also personal property consisting of shares of stock in nineteen

(19) domestic corporations;

11. That the fair market value of all the property in the Philippine Islands left

by the deceased at the time of his death in accordance with the inventory

submitted to the Court of First Instance of Manila, civil case No. 33089, was

P217,560.38;

12. That the Bank of the Philippine Islands, as administrator of the estate of

the deceased rendered its final account on June 19, 1929, and that said

estate was closed on July 16, 1929;

13. That among the personal property of the deceased was found life-

insurance policy No. 194538 issued at Manila, Philippine Islands, on January

14, 1913, for the sum of $10,000 by the Sun Life Assurance Company of

Canada, Manila branch, a foreign corporation duly organized and existing

under and by virtue of the laws of Canada, and duly authorized to transact

business in the Philippine Islands;

14. That in the insurance policy the estate of the said Adolphe Oscar

Schuetze was named the beneficiary without any qualification whatsoever;

15. That for five consecutive years, the deceased Adolphe Oscar Schuetze

paid the premiums of said policy to the Sun Life Assurance Company of

Canada, Manila branch;

16. That on or about the year 1918, the Sun Life Assurance Company of

Canada, Manila branch, transferred said policy to the Sun Life Assurance

Company of Canada, London branch;

17. That due to said transfer the said Adolphe Oscar Schuetze from 1918 to

the time of his death paid the premiums of said policy to the Sun Life

Assurance Company of Canada, London Branch;

18. That the sole and only heir of the deceased Adolphe Oscar Schuetze is his

widow, the plaintiff herein;

19. That at the time of the death of the deceased and at all times thereafter

including the date when the said insurance policy was paid, the insurance

policy was not in the hands or possession of the Manila office of the Sun Life

Assurance Company of Canada, nor in the possession of the herein plaintiff,

nor in the possession of her attorney-in-fact the Bank of the Philippine

Islands, but the same was in the hands of the Head Office of the Sun Life

Assurance Company of Canada, at Montreal, Canada;

20. That on July 13, 1928, the Bank of the Philippine Islands as administrator

of the decedent's estate received from the Sun Life Assurance Company of

Canada, Manila branch, the sum of P20,150 representing the proceeds of the

insurance policy, as shown in the statement of income and expenses of the

estate of the deceased submitted on June 18, 1929, by the administrator to

the Court of First Instance of Manila, civil case No. 33089;


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21. That the Bank of the Philippine Islands delivered to the plaintiff herein

the said sum of P20,150;

22. That the herein defendant on or about July 5, 1929, imposed an

inheritance tax upon the transmission of the proceeds of the policy in

question in the sum of P20,150 from the estate of the late Adolphe Oscar

Schuetze to the sole heir of the deceased, or the plaintiff herein, which

inheritance tax amounted to the sum of P1,209;

23. That the Bank of the Philippine Islands as administrator of the decedent's

estate and as attorney-in-fact of the herein plaintiff, having been demanded

by the herein defendant to pay inheritance tax amounting to the sum of

P1,209, paid to the defendant under protest the above-mentioned sum;

24. That notwithstanding the various demands made by plaintiff to the

defendant, said defendant has refused and refuses to refund to plaintiff the

above mentioned sum of P1,209;

25. That plaintiff reserves the right to adduce evidence as regards the

domicile of the deceased, and so the defendant, the right to present rebuttal

evidence;

26. That both plaintiff and defendant submit this stipulation of facts without

prejudice to their right to introduce such evidence, on points not covered by

the agreement, which they may deem proper and necessary to support their

respective contentions.

In as much as one of the question raised in the appeal is whether an

insurance policy on said Adolphe Oscar Schuetze's life was, by reason of its

ownership, subject to the inheritance tax, it would be well to decide first

whether the amount thereof is paraphernal or community property.

According to the foregoing agreed statement of facts, the estate of

Adolphe Oscar Schuetze is the sole beneficiary named in the life-insurance

policy for $10,000, issued by the Sun Life Assurance Company of Canada on

January 14, 1913. During the following five years the insured paid the

premiums at the Manila branch of the company, and in 1918 the policy was

transferred to the London branch.

The record shows that the deceased Adolphe Oscar Schuetze married

the plaintiff-appellant Rosario Gelano on January 16, 1914.

With the exception of the premium for the first year covering the

period from January 14, 1913 to January 14, 1914, all the money used forpaying the premiums, i. e., from the second year, or January 16, 1914, or

when the deceased Adolphe Oscar Schuetze married the plaintiff-appellant

Rosario Gelano, until his death on February 2, 1929, is conjugal property

inasmuch as it does not appear to have exclusively belonged to him or to his

wife (art. 1407, Civil Code). As the sum of P20,150 here in controversy is a

product of such premium it must also be deemed community property,

because it was acquired for a valuable consideration, during said Adolphe

Oscar Schuetze's marriage with Rosario Gelano at the expense of the

common fund (art. 1401, No. 1, Civil Code), except for the small partcorresponding to the first premium paid with the deceased's own money.

In his Commentaries on the Civil Code, volume 9, page 589, second

edition, Manresa treats of life insurance in the following terms, to wit:

The amount of the policy represents the premiums to be paid, and the

right to it arises the moment the contract is perfected, for at the moment

the power of disposing of it may be exercised, and if death occurs payment

may be demanded. It is therefore something acquired for a valuable

consideration during the marriage, though the period of its fulfillment,

depend upon the death of one of the spouses, which terminates the

partnership. So considered, the question may be said to be decided by

articles 1396 and 1401: if the premiums are paid with the exclusive property

of husband or wife, the policy belongs to the owner; if with conjugal

property, or if the money cannot be proved as coming from one or the other

of the spouses, the policy is community property.

The Supreme Court of Texas, United States, in the case of Martin vs.

Moran (11 Tex. Civ. A., 509) laid down the following doctrine:


15/22

COMMUNITY PROPERTY LIFE INSURANCE POLICY. A husband took

out an endowment life insurance policy on his life, payable "as directed by

will." He paid the premiums thereon out of community funds, and by his will

made the proceeds of the policy payable to his own estate. Held, that the

proceeds were community estate, one-half of which belonged to the wife.

In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of

California laid down the following doctrine:

A testator, after marriage, took out an insurance policy, on which he

paid the premiums from his salary. Held that the insurance money was

community property, to one-half of which, the wife was entitled as survivor.

In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down

the following doctrine:

A decedent paid the first third of the amount of the premiums on his

life-insurance policy out of his earnings before marriage, and the remainder

from his earnings received after marriage. Held, that one-third of the policy

belonged to his separate estate, and the remainder to the community

property.

Thus both according to our Civil Code and to the ruling of those North

American States where the Spanish Civil Code once governed, the proceeds

of a life-insurance policy whereon the premiums were paid with conjugal

money, belong to the conjugal partnership.

The appellee alleges that it is a fundamental principle that a life-

insurance policy belongs exclusively to the beneficiary upon the death of the

person insured, and that in the present case, as the late Adolphe Oscar

Schuetze named his own estate as the sole beneficiary of the insurance on

his life, upon his death the latter became the sole owner of the proceeds,

which therefore became subject to the inheritance tax, citing Del Val vs. Del

Val(29 Phil., 534), where the doctrine was laid down that an heir appointed

beneficiary to a life-insurance policy taken out by the deceased, becomes the

absolute owner of the proceeds of such policy upon the death of the insured.

The estate of a deceased person cannot be placed on the same footing

as an individual heir. The proceeds of a life-insurance policy payable to the

estate of the insured passed to the executor or administrator of such estate,

and forms part of its assets (37 Corpus Juris, 565, sec. 322); whereas the

proceeds of a life-insurance policy payable to an heir of the insured as

beneficiary belongs exclusively to said heir and does not form part of the

deceased's estate subject to administrator. (Del Val vs. Del Val, supra; 37

Corpus Juris, 566, sec. 323, and articles 419 and 428 of the Code of

Commerce.)

Just as an individual beneficiary of a life-insurance policy taken out by a

married person becomes the exclusive owner of the proceeds upon the

death of the insured even if the premiums were paid by the conjugal

partnership, so, it is argued, where the beneficiary named is the estate of the

deceased whose life is insured, the proceeds of the policy become a part of

said estate upon the death of the insured even if the premiums have been

paid with conjugal funds.

In a conjugal partnership the husband is the manager, empowered to

alienate the partnership property without the wife's consent (art. 1413, Civil

Code), a third person, therefore, named beneficiary in a life-insurance policy

becomes the absolute owner of its proceeds upon the death of the insured

even if the premiums should have been paid with money belonging to the

community property. When a married man has his life insured and names his

own estate after death, beneficiary, he makes no alienation of the proceeds

of conjugal funds to a third person, but appropriates them himself, addingthem to the assets of his estate, in contravention of the provisions of article

1401, paragraph 1, of the Civil Code cited above, which provides that "To the

conjugal partnership belongs" (1) Property acquired for a valuable

consideration during the marriage at the expense of the common fund,

whether the acquisition is made for the partnership or for one of the spouses

only." Furthermore, such appropriation is a fraud practised upon the wife,

which cannot be allowed to prejudice her, according to article 1413,

paragraph 2, of said Code. Although the husband is the manager of the


16/22

conjugal partnership, he cannot of his own free will convert the partnership

property into his own exclusive property.

As all the premiums on the life-insurance policy taken out by the late

Adolphe Oscar Schuetze, were paid out of the conjugal funds, with the

exceptions of the first, the proceeds of the policy, excluding the proportional

part corresponding to the first premium, constitute community property,

notwithstanding the fact that the policy was made payable to the deceased's

estate, so that one-half of said proceeds belongs to the estate, and the other

half to the deceased's widow, the plaintiff-appellant Rosario Gelano Vda. de

Schuetze.

The second point to decide in this appeal is whether the Collector of

Internal Revenue has authority, under the law, to collect the inheritance tax

upon one-half of the life-insurance policy taken out by the late Adolphe

Oscar Schuetze, which belongs to him and is made payable to his estate.

According to the agreed statement of facts mentioned above, the

plaintiff-appellant, the Bank of the Philippine Islands, was appointed

administrator of the late Adolphe Oscar Schuetze's testamentary estate by

an order dated March 24, 1928, entered by the Court of First Instance of

Manila. On July 13, 1928, the Sun Life Assurance Company of Canada, whose

main office is in Montreal, Canada, paid Rosario Gelano Vda. de Schuetze

upon her arrival at Manila, the sum of P20,150, which was the amount of the

insurance policy on the life of said deceased, payable to the latter's estate.

On the same date Rosario Gelano Vda. de Schuetze delivered the money to

said Bank of the Philippine Islands, as administrator of the deceased's estate,

which entered it in the inventory of the testamentary estate, and then

returned the money to said widow.

Section 1536 of the Administrative Code, as amended by section 10 of

Act No. 2835 and section 1 of Act No. 3031, contains the following relevant

provision:

SEC. 1536. Conditions and rate of taxation. Every transmission by

virtue of inheritance, devise, bequest, gift mortis causa or advance in

anticipation of inheritance, devise, or bequest of real property located in the

Philippine Islands and real rights in such property; of any franchise which

must be exercised in the Philippine Islands; of any shares, obligations, or

bonds issued by any corporation or sociedad anonimaorganized or

constituted in the Philippine Islands in accordance with its laws; of any

shares or rights in any partnership, business or industry established in the

Philippine Islands or of any personal property located in the Philippine

Islands shall be subject to the following tax:

x x x x x x x x x

In as much as the proceeds of the insurance policy on the life of the

late Adolphe Oscar Schuetze were paid to the Bank of the Philippine Islands,

as administrator of the deceased's estate, for management and partition,

and as such proceeds were turned over to the sole and universal

testamentary heiress Rosario Gelano Vda. de Schuetze, the plaintiff-

appellant, here in Manila, the situs of said proceeds is the Philippine Islands.

In his work "The Law of Taxation," Cooley enunciates the general rule

governing the levying of taxes upon tangible personal property, in the

following words:

GENERAL RULE. The suits of tangible personal property, for purposes

of taxation may be where the owner is domiciled but is not necessarily so.

Unlike intangible personal property, it may acquire a taxation situs in a state

other than the one where the owner is domiciled, merely because it is

located there. Its taxable situs is where it is more or less permanently

located, regardless of the domicile of the owner. It is well settled that the

state where it is more or less permanently located has the power to tax it

although the owner resides out of the state, regardless of whether it has

been taxed for the same period at the domicile of the owner, provided there

is statutory authority for taxing such property. It is equally well settled that

the state where the owner is domiciled has no power to tax it where the

property has acquired an actual situs in another state by reason of its more

or less permanent location in that state. ... (2 Cooley, The Law of Taxation,

4th ed., p. 975, par. 451.)


17/22

With reference to the meaning of the words "permanent" and "in

transit," he has the following to say:

PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. In order to

acquire a situs in a state or taxing district so as to be taxable in the state or

district regardless of the domicile of the owner and not taxable in another

state or district at the domicile of the owner, tangible personal property

must be more or less permanently located in the state or district. In other

words, the situs of tangible personal property is where it is more or less

permanently located rather than where it is merely in transit or temporarily

and for no considerable length of time. If tangible personal property is more

or less permanently located in a state other than the one where the owner is

domiciled, it is not taxable in the latter state but is taxable in the state where

it is located. If tangible personal property belonging to one domiciled in one

state is in another state merely in transitu or for a short time, it is taxable in

the former state, and is not taxable in the state where it is for the time

being. . . . .

Property merely in transit through a state ordinarily is not taxable

there. Transit begins when an article is committed to a carrier for

transportation to the state of its destination, or started on its ultimate

passage. Transit ends when the goods arrive at their destination. But

intermediate these points questions may arise as to when a temporary stop

in transit is such as to make the property taxable at the place of stoppage.

Whether the property is taxable in such a case usually depends on the length

of time and the purpose of the interruption of transit. . . . .

. . . It has been held that property of a construction company, used in

construction of a railroad, acquires a situs at the place where used for an

indefinite period. So tangible personal property in the state for the purpose

of undergoing a partial finishing process is not to be regarded as in the

course of transit nor as in the state for a mere temporary purpose. (2 Cooley,

The Law of Taxation, 4th ed., pp. 982, 983 and 988, par. 452.)

If the proceeds of the life-insurance policy taken out by the late

Adolphe Oscar Schuetze and made payable to his estate, were delivered to

the Bank of the Philippine Islands for administration and distribution, they

were not in transit but were more or less permanently located in the

Philippine Islands, according to the foregoing rules. If this be so, half of the

proceeds which is community property, belongs to the estate of the

deceased and is subject to the inheritance tax, in accordance with the legal

provision quoted above, irrespective of whether or not the late Adolphe

Oscar Schuetze was domiciled in the Philippine Islands at the time of his

death.

By virtue of the foregoing, we are of opinion and so hold: (1) That the

proceeds of a life-insurance policy payable to the insured's estate, on which

the premiums were paid by the conjugal partnership, constitute community

property, and belong one-half to the husband and the other half to the wife,

exclusively; (2) that if the premiums were paid partly with paraphernal and

partly conjugal funds, the proceeds are likewise in like proportion

paraphernal in part and conjugal in part; and (3) that the proceeds of a life-

insurance policy payable to the insured's estate as the beneficiary, if

delivered to the testamentary administrator of the former as part of the

assets of said estate under probate administration, are subject to the

inheritance tax according to the law on the matter, if they belong to the

assured exclusively, and it is immaterial that the insured was domiciled in

these Islands or outside.1awphil.net

Wherefore, the judgment appealed from is reversed, and the

defendant is ordered to return to the plaintiff the one-half of the tax

collected upon the amount of P20,150, being the proceeds of the insurancepolicy on the life of the late Adolphe Oscar Schuetze, after deducting the

proportional part corresponding to the first premium, without special

pronouncement of costs. So ordered.

Avancea, C.J., Johnson, Street, Malcolm, Villamor, and Ostrand, JJ., concur.


18/22

Separate Opinions

IMPERIAL,J., dissenting:

I cannot concur with the majority in holding that one-half of the

insurance policy on the life of the late Adolphe Oscar Schuetze, excepting the

proportional part corresponding to the first year's premium is community

property belonging to the deceased's widow, named Rosario Gelano, and as

such is not subject to the inheritance tax.

There is no question in regard to the facts: It is admitted that Schuetze

insured himself in the Sun Life Insurance Company of Canada in Manila, and

that the policy was issued on January 14, 1913, payable to his estate after

death. He died in Manila on February 2, 1928, leaving his widow as his sole

testamentary heiress. The appellant, the Bank of the Philippine Islands, as

administrator of the late Schuetze's testamentary estate, received from the

insurer the amount of this policy, or the net sum of P20,150.

It is an established and generally recognized principle that in a life-

insurance policy where the insured has named a beneficiary, the proceeds

belong to said beneficiary, and to him alone. "Vested Interest of

Beneficiary. In practically every jurisdiction it is the rule that in an ordinary

life insurance policy made payable to a beneficiary, and which does not

authorize a change of beneficiary, the named beneficiary has an absolute,

vested interest in the policy from the date of its issuance, delivery andacceptance, and this is true of a policy payable to the children of the insured

equally, without naming them, or their executors, administrators or assigns."

(14 R.C.L., 1376.) (Del Val vs. Del Val, 29 Phil., 534 et seq.; Gercio vs. Sun Life

Assurance Co. of Canada, 48 Phil., 53 et seq.) When in a life-insurance policy

the insured's estate is named beneficiary, the proceeds must be delivered

not to the decedent's heirs, but to his administrator or legal representative.

"Policy Payable to Insured, His Estate, or Legal Representatives . ... Ordinarily

the proceeds of a life insurance policy are payable to the executor or

administrator of insured as assets of his estate where by the terms of the

policy the proceeds are payable to insured, his estate, his legal

representatives, his executors or administrators, his "executors,

administrators, or assigns," or even his "heirs, executors, administrators, or

assigns." ..." (37 C.J., 565.) "Personal Representatives or Legal

Representatives. While there is some authority to the effect that "legal

representatives" means the persons entitled to the estate of the insured,

and not his executor or administrator, the better view is that ordinarily the

proceeds of such a policy pass to his executor or administrator." (14 R.C.L.,

1372.)

If the foregoing are the principles which should govern life-insurance

policies with reference to beneficiaries and the right to the proceeds of such

policies, it is evident that Schuetze's estate, and not his widow or the

conjugal partnership, is entitled to the proceeds of said policy exclusively,

and may receive them from the insurer. The parties must have so

understood it when the insurer delivered the net amount of the policy to the

Bank of the Philippine Islands, as judicial administrator of the insured.

It is stated in the majority opinion that the money with which the

premiums were paid during the marriage of the Schuetzes is presumed to

have been taken from the conjugal funds, according to article 1407 of the

Civil Code, which provides that "All the property of the spouses shall be

deemed partnership property in the absence of proof that it belongs

exclusively to the husband or to the wife." This is the very argument which

led to the settlement of the point of law raised. The provisions of the Civil

Code on conjugal property have been improperly applied withoutconsidering that a life-insurance contract is a peculiar contract governed by

special laws, such as Act No. 2427 with its amendments, and the Code of

Commerce, which is still in force. In Del Val, supra, it was already held:

We cannot agree with these contentions. The contract of life insurance

is a special contract and the destination of the proceeds thereof is

determined by special laws which deal exclusively with that subject. The Civil

Code has no provisions which relate directly and specially to life insurance

contracts or to the destination of life insurance proceeds. That subject is

regulated exclusively by the Code of Commerce which provides for the terms


19/22

of the contract, the relations of the parties and the destination of the

proceeds of the policy.

The main point to be decided was not whether the premiums were

paid out of conjugal or personal funds of one of the spouses, but whether or

not the proceeds of the policy became assets of the insured's estate. If it be

admitted that the estate is the sole owner of the aforesaid proceeds, which

cannot be denied, inasmuch as the policy itself names the estate as the

beneficiary, it is beside the point to discuss the nature and origin of the

amounts used to pay the premiums, as the title to the proceeds of the policy

is vested in the insured's estate, and any right the widow might have should

be vindicated in another action. In such a case she might be entitled to

reimbursement of her share in the conjugal funds, but not in the present

case, for she has been instituted the sole testamentary heiress.

From the foregoing, it follows that as the proceeds of the policy belong

to Schuetze's estate, and inasmuch as the inheritance tax is levied upon thetransmission of a deceased person's estate upon, or, on the occasion of his

death, it is clear that the whole proceeds, and not one-half thereof, are

subject to such tax.

In my opinion the judgment appealed from should have been affirmed

in its entirely.

Romualdez, J., concurs.


20/22

Collector of Internal Revenue vs Campos Rueda

Political LawDefinition of State

Maria Cerdeira died in Tangier, (an international zone [foreign country] in

North Africa), on January 2, 1955. At the time of her demise, she was

married to a Spanish Citizen and a permanent resident of Tangier from 1931

up to her death, on January 2, 1955. She left properties in Tangier as well asin the Philippines. Among the properties in the Philippines are several parcels

of land and many shares of stock, accounts receivable and other intangible

personal properties. On the real estate the respondent Antonio Campos

Rueda, as administrator of her estate, paid the sum of P111,582.00 as estate

tax and the sum of P151,791.48 as inheritance tax, on the transfer of her real

properties in the Philippines, but refused to pay the corresponding deficiency

estate and inheritance taxes due on the transfer of her intangible personal

properties, claiming that the estate is exempt from the payment of said taxes

pursuant to section 122 of the Tax Code and that he could avail of thereciprocal provisions of our Tax Code. The Collector of Internal Revenue in a

decision assessed the estate of the deceased, as def iciency estate and

inheritance taxes, the sum of P161,874.95 including interest and penalties,

on the transfer of intangible personal properties of Maria Cerdeira..

ISSUE: Whether or not Rueda is rightfully assessed those taxes.

HELD: Foreign Country used in Sec 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 of death taxes upon intangible personal properties of citizens not

residing therein. Or whose law allows a similar exemption from such taxes. It

is not necessary that Tangier should have been recognized by our

government in order to entitle the petitioner to the exemption benefits

provided by our Tax Law. But since such law has not been al leged, this case is

to remanded to the lower court for further trial.

Vidal de Roces v. Posadas

G.R. No. 34937 March 13, 1933

Imperial, J.:

Facts:

1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband,

as well as one Elvira Richards, received as donation several parcels of land

from Esperanza Tuazon. They took possession of the lands thereafter and

likewise obtained the respective transfer certificates.

2.The donor died a year after without leaving any forced heir. In her will,

which was admitted to probate, she bequeathed to each of the donees the

sum of P5,000. After the distribution of the estate but before the delivery of

their shares, the CIR (appellee) ruled that plaintiffs as donees and legatees

should pay inheritance taxes. The plaintiffs paid the taxes under protest.

3. CIR filed a demurrer on ground that the facts alleged were not sufficient to

constitute a cause of action. The court sustained the demurrer and ordered

the amendment of the complaint but the appellants failed to do so. Hence,

the trial court dismissed the action on ground that plaintiffs, herein

appellants, did not really have a right of action.

4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative Code

does not include donationinter vivos and if it does, it is unconstitutional, null

and void for violating SEC. 3 of the Jones Law (providing that no law shall

embrace more than one subject and that the subject should be expressed in

its titles ; that the Legislature has no authority to tax donation inter vivos;

finally, that said provision violates the rule on uniformity of taxation.


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5. CIR however contends that the word 'all gifts' refer clearly to

donation inter vivos and cited the doctrine in Tuason v. Posadas.

Issue: Whether or not the donations should be subjected to inheritance tax

YES. Sec. 1540 of the Administrative Code clearly refers to those

donation inter vivos that take effect immediately or during the lifetime of the

donor, but made in consideration of the death of the decedent. Those

donations not made in contemplation of the decedent's death are not

included as it would be equivalent to imposing a direct tax on property and

not on its transmission.

The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter vivos as

they are considered as advances in anticipation of inheritance since they are

made in consideration of death.

Dison v. Posadas

G.R. No. 36770 November 4, 1932

Butte, J.:

Facts:

1. Plaintiff Luis Dison filed a suit against CIR to recover inheritance tax paid

under protest amounting to P2,808.73. Felix Dison, plaintiff's father executed

a deed of gift which transferred 22 tracts of land, reserving to himself during

his lifetime the usufruct of 3 tracts. The donation was formally accepted by

plaintiff.

2. The plaintiff (herein petitioner) alleged in his complaint that the tax is

illegal since he received the property by a deed of gift inter vivos duly

accepted and registered before the death of his father. He also contended

that Act 2601 being an inheritance tax statute, does not tax gifts. The

defendant answered in general denial with a countermand. The court

dismissed the countermand. Both sides appealed, but the CIR appeal was

dismissed.

Issue: Whether or not the gifts inter vivos are taxable (inheritance tax)

YES.

Inheritance tax is imposed upon the gift inter vivos that plaintiff received

from his father as this was really an advancement upon the inheritance to

which he would be entitled upon the death of the latter. Sec. 1540 of the

Administrative Code did not tax giftsper se but only those which are made to

those who shall prove to be heirs, devisees, legatees and donees mortis

causa of the donor. The term 'heirs' include those given the status of heirs

irrespective of the quantity of property they may receive as such.


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BPI vs Posadas 56 Phil 215

FACTS: The estate of Adolphe Oscar Schuetze is the sole beneficiary named

in the life-insurance policy for $10,000, issued by the Sun Life Assurance

Company of Canada on January 14, 1913. During the following five years the

insured paid the premiums at the Manila branch of the company, and in

1918 the policy was transferred to the London branch. The record shows

that the deceased Adolphe Oscar Schuetze married the plaintiff-appellant

Rosario Gelano on January 16, 1914. Bank of the Philippine Islands, was

appointed administrator of the late Adolphe Oscar Schuetze's testamentary

estate by an order dated March 24, 1928, entered by the Court of First

Instance of Manila. On July 13, 1928, the Sun Life Assurance Company of

Canada, whose main office is in Montreal , Canada, paid Rosario Gelano Vda.

de Schuetze upon her arrival at Manila, the sum of P20,150, which was the

amount of the insurance policy on the life of said deceased, payable to the

latter's estate. On the same date Rosario Gelano Vda. de Schuetze delivered

the money to said Bank of the Philippine Islands, as administrator of the

deceased's estate, which entered it in the inventory of the testamentary

estate, and then returned the money to said widow. The present complaint

seeks to recover from the defendant Juan Posadas, Jr., Collector of Internal

Revenue, the amount of P1,209 paid by the plaintiff under protest, in its

capacity of administrator of the estate of the late Adolphe Oscar Schuetze, as

inheritance tax upon the sum of P20,150, which is the amount of an

insurance policy on the deceased's life, wherein his own estate was named

the beneficiary.

ISSUE: WON the proceeds of a life-insurance policy is subject to inheritance

tax.

RULING: By virtue of the foregoing, we are of opinion and so hold: (1) That

the proceeds of a life-insurance policy payable to the insured's estate, on

which the premiums were paid by the conjugal partnership, constitute

community property, and belong one-half to the husband and the other half

to the wife, exclusively; (2) that if the premiums were paid partly with

paraphernal and partly conjugal funds, the proceeds are likewise in like

proportion paraphernal in part and conjugal in part; and (3) that the

proceeds of a life-insurance policy payable to the insured's estate as the

beneficiary, if delivered to the testamentary administrator of the former as

part of the assets of said estate under probate administration, are subject to

the inheritance tax according to the law on the matter, if they belong to the

assured exclusively, and it is immaterial that the insured was domiciled in

these Islands or outside.

CA decision is reversed. Defendant is ordered to return of the tax

collected upon the amount of P20,150, being the proceeds of the insurance

policy on the life of the late Adolphe Oscar Schuetze, after deducting the

proportional part corresponding to the first premium.

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