Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. Nos. L-9456 and L-9481             January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs.DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the COURT OF TAX APPEALS, respondents.

Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara.Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue.

MONTEMAYOR, J.:

These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller, from the decision of the Court of Tax Appeals of June 25, 1955, with the following dispositive part:

WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the decedent Hugo H. Miller is hereby modified in accordance with the computation attached as Annex "A" of this decision. Petitioner is hereby ordered to pay the amount of P2,047.22 representing estate taxes due, together with the interests and other increments. In case of failure to pay the amount of P2,047.22 within thirty (30) days from the time this decision has become final, the 5 per cent surcharge and the corresponding interest due thereon shall be paid as a part of the tax.

The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly stated as follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later as a division superintendent of schools, later retiring under the Osmeiia Retirement Act. After his retirement, Miller accepted an executive position in the local branch of Ginn & Co., book publishers with principal offices in New York and Boston, U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in the Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also China and Japan. His principal work was selling books specially written for Philippine schools. In or about the year 1922, Miller lived at the Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California, but she used to come to the Philippines for brief visits with Miller, staying three or four months. Miller also used to visit his wife in California. He never lived in any residential house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11, 1944, and since then, nothing has been heard from him. At the time of his death in 1944, Miller owned the following properties:

Real Property situated in Ben-Lomond, Santa Cruz, California valued at ......................................................................

P 5,000.0

0

Real property situated in Burlingame, San Mateo, California valued at ........................................................................................

16,200.00

Tangible Personal property, worth.............................................2,140.0

0

Cash in the banks in the United States....................................21,178.

20

Accounts Receivable from various persons in the United States including notes ...............................................................

36,062.74

Stocks in U.S. Corporations and U.S. Savings Bonds, valued at ........................................................................................

123,637.16

Shares of stock in Philippine Corporations, valued at ..........51,906.

45Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court subsequently issued an order and decree of settlement of final account and final distribution, wherein it found that Miller was a "resident of the County of Santa Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary proceedings were filed by the executors of the will before the Court of First Instance of Manila, which court by order of November 21, 1946, admitted to probate the will of Miller was probated in the California court, also found that Miller was a resident of Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax return with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability of P269.43 for taxes and P230.27 for inheritance taxes. After due investigation, the Collector assessed estate and inheritance taxes, which was received by the said executor on April 3, 1950. The estate of Miller protested the assessment of the liability for estate and inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals.

In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his death. The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a "residence" in this country, and was a resident thereof at the time of his death, and consequently, his intangible personal properties situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator, however, equally maintains that for estate and inheritance tax purposes, the term "residence" is synonymous with the term domicile.

We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that the two were used intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without distinction, the case involving the application of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of the Revised Administrative Code), and that consequently, it will be presumed that in using the term residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is reason to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal Revenue Code Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is interpreted as synonymous with domicile, and that—

The incidence of estate and succession has historically been determined by domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den (1928) 272 U.S.608).

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in Santa Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs, such as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time,

. . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtains- protection, benefit, and power over the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates at stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80).

The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code, which provides as follows:

. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country.

The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from the California inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates of non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of 1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows:

SEC. 6. The following exemption from the tax are hereby allowed:

xxx             xxx             xxx.

(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is a resident of a State or Territory of the United States or a foreign state or country which at the time of his death imposed a legacy, succession of death tax in respect of intangible personal property within the State or Territory or foreign state or country of residents of the States or Territory or foreign state or country of residence of the decedent at the time of his death contained a reciprocal provision under which non-residents were exempted from legacy or succession taxes or death taxes of every character in respect of intangible personal property providing the State or Territory or foreign state or country of residence of such non-residents allowed a similar exemption to residents of the State, Territory or foreign state or country of residence of such decedent.

Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible personal property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision of Section 122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a decedent's intangible personal property to the inheritance tax, both in his place of residence and domicile and the place where those properties are found. As regards the exemption or reduction of P4,000 based on the reduction under the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed under the Federal Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court observes--.

. . . this exemption is allowed on all gross estate of non-residents of the United States, who are not citizens thereof, irrespective of whether there is a corresponding or similar exemption from transfer or death taxes of non-residents of the Philippines, who are citizens of the United States; and thirdly, because this exemption is allowed on all gross estates of non-residents irrespective of whether it involves tangible or intangible, real or personal property; so that for these reasons petitioner cannot claim a reciprocity. . .

Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under section 85 of the Tax Code, before it was amended, which in part provides as follows:

SEC. 85. Rates of estate tax.—There shall be levied, assessed, collected, and paid upon the transfer of the net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum of the following percentages of the value of the net estate determined as provided in sections 88 and 89:

One per centrum of the amount by which the net estate exceeds three thousand pesos and does not exceed ten thousand pesos;. . .

It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other increments. Said Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The provisions of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic Act was approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but was killed by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the interests and other increments provided in the appealed judgment should not be paid by his estate.

With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it unnecessary to pass upon the other points raised in the appeal. No costs.

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

December 19, 1935

G.R. No. 43314A.L. VELILLA, administrator of the estate of Arthur Graydon Moody, plaintiff -appellant, vs.JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.Ohnick and Opisso for appellant.Office of the Solicitor-General Hilado for appellee.BUTTE, J.:This is an appeal from a judgment of the Court of First Instant of manila in an action to recover from the defendant-appellee as Collector of Internal Revenue the sum of P77,018.39 as inheritance taxes and P13,001.41 as income taxes assessed against the estate of Arthur G. Moody, deceased.

The parties submitted to the court an agreed statement of facts as follows:

I. That Arthur Graydon Moody died in Calcutta, India, on February 18, 1931.

II. That Arthur Graydon Moody executed in the Philippine Islands a will, certified copy of which marked Exhibit AA is hereto attached and made a part hereof, by virtue of which will, he bequeathed all his property to his only sister, Ida M. Palmer, who then was and still is a citizen and resident of the State of New York, United States of America.

III. That on February 24,1931, a petition for appointment of special administrator of the estate of the deceased Arthur Graydon Moody was filed by W. Maxwell Thebaut with the Court of First Instance of Manila, the same being designated as case No. 39113 of said court. Copy of said petition marked Exhibit BB is hereto attached and made a part hereof.

IV. That subsequently or on April 10, 1931, a petition will of the deceased Arthur Graydon Moody, and the same was, after hearing, duly probated by the court in a decree dated May 5, 1931. Copies of the petition and of the decree marked Exhibits CC and DD, respectively, are hereto attached and made parts hereof.

V. That on July 14, 1931, Ida M. Palmer was declared to be the sole and only heiress of the deceased Arthur Graydon Moody by virtue of an order issued by the court in said case No. 39113, copy of which marked Exhibit EE is hereto attached and made a part hereof; and that during the hearing for the declaration of heirs, Ida M. Palmer presented as evidence a letter dated February 28, 1925, and addressed to her by Arthur Graydon Moody, copy of which marked Exhibit FF hereto attached and made part hereof.

VI. That the property left by the late Arthur Graydon Moody consisted principally of bonds and shares of stock of corporations organized under the laws of the Philippine Islands, bank deposits and other personal properties, as are more fully shown in the inventory of April 17, 1931, filed by the special administrator with the court in said case No. 39113, certified copy of which inventory marked Exhibit GG is hereto attached and made a part hereof. This stipulation does not, however, cover the respective values of said properties for the purpose of the inheritance tax.

VII. That on July 22, 1931, the Bureau of Internal Revenue prepared for the estate of the late Arthur Graydon Moody an inheritance tax return, certified copy of which marked Exhibit HH is hereto attached and made a part, hereof.

VIII. That on September 9, 1931, an income tax return for the fractional period from January 1, 1931 to June 30, 1931, certified copy of which marked Exhibit 11 is hereto attached and made a part hereof, was also prepared by the Bureau of Internal Revenue for the estate of the said deceased Arthur Graydon Moody.IX. That on December 3, 1931, the committee on claims and appraisals filed with the court its report, certified copy of which marked Exhibit KK is hereto attached and made a part hereof.

X. That on September 15, 1931, the Bureau of Internal Revenue addressed to the attorney for the administratrix Ida M. Palmer a letter, copy of which marked Exhibit LL is hereto attached and made a part hereof.

XI. That on October 15, 1931, the attorney for Ida M. Palmer answered the letter of the Collector of Internal Revenue referred to in the preceding paragraph. Said answer marked Exhibit MM is hereto attached and made a part hereof.

XII. That on November 4, 1931, and in answer to the letter mentioned in the preceding paragraph, the Bureau of Internal Revenue addressed to the attorney for Ida M. Palmer another letter, copy of which marked Exhibit NN is hereto attached and made a part hereof.

XIII. That on December 7, 1931, the attorney for Ida M. Palmer again replied in a letter, marked Exhibit OO, hereto attached and made a part hereof.

XIV. That the estate of the late Arthur Graydon Moody paid under protest the sum of P50,000 on July 22, 1931, and the other sum of P40,019.75 on January 19, 1932, making assessment for inheritance tax and the sum of P13,001.41 covers the assessment for income tax against said estate.

XV. That on January 21, 1932, the Collector of Internal Revenue overruled the protest made by Ida M. Palmer through her attorney.

XVI. The parties reserve their right to introduce additional evidence at the hearing of the present case.

Manila, August 15, 1933.

In addition to the foregoing agreed statement of facts, both parties introduced oral and documentary evidence from which it appears that Arthur G. Moody, an American citizen, came to the Philippine Islands in 1902 or 1903 and engaged actively in business in these Islands up to the time of his death in Calcutta, India, on February 18, 1931. He had no business elsewhere and at the time of his death left an estate consisting principally of bonds and shares of stock of corporations organized under the laws of the Philippine Islands, bank deposits and other intangibles and personal property valued by the commissioners of appraisal and claims at P609,767.58 and by the Collector of Internal Revenue for the purposes of inheritance tax at P653,657.47. All of said property at the time of his death was located and had its situs within the Philippine Islands. So far as this record shows, he left no property of any kind located anywhere else. In his will, Exhibit AA, executed without date in Manila in accordance with the formalities of the Philippine law, in which he bequeathed all his property to his sister, Ida M. Palmer, he stated:

I, Arthur G. Moody, a citizen of the United States of America, residing in the Philippine Islands, hereby publish and declare the following as my last Will and Testament . . ..

The substance of the plaintiff's cause of action is stated in paragraph 7 of his complaint as follows:

That there is no valid law or regulation of the Government of the Philippine Islands under or by virtue of which any inheritance tax may be levied, assessed or collected upon transfer, by death and succession, of intangible personal properties of a person not domiciled in the Philippine Islands, and the levy and collection by defendant of inheritance tax computed upon the value of said stocks, bonds, credits and other intangible properties as aforesaid constituted and constitutes the taking and deprivation of property without due process of law contrary to the Bill of Rights and organic law of the Philippine Islands.

Section 1536 of the Revised Administrative Code (as amended) provides as follows:

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 anonima organized or constituted in the Philippine Islands in accordance with its laws; of any shares or rights in any partnership, business or any personal property located in the Philippine Islands shall be subject to the following tax:

x x x    x x x    x x x

It is alleged in the complaint that at the time of his death, Arthur G. Moody was a "non-resident of the Philippine Islands". The answer, besides the general denial, sets up as a special defense "Arthur G. Moody, now deceased, was and prior to the date of his death, a resident in the City of Manila, Philippine Islands, where he was engaged actively in business." Issue was thus joined on the question: Where was the legal domicile of Arthur G. Moody at the time of his death?

The Solicitor-General raises a preliminary objection to the consideration of any evidence that Moody's domicile was elsewhere than in Manila at the time of his death based on the proposition that as no such objection was made before the Collector of Internal Revenue as one of the grounds of the protest against the payment of the tax, this objection cannot be considered in a suit against the Collector to recover the taxes paid under protest. He relies upon the decision in the case of W.C. Tucker vs. A.C. Alexander, Collector (15 Fed. [21, 356). We call attention, however, to the fact that this decision was reversed in 275 U.S., 232; 72 Law. ed., 256, and the case remanded for trial on the merits on the ground that the requirement that the action shall be based upon the same grounds, and only such, as were presented in the protest had been waived by the collector. In the case before us no copy of the taxpayer's protest is included in the record and we have no means of knowing its contents. We think, therefore, the preliminary objection made on behalf of the appellee does not lie.We proceed, therefore, to the consideration of the question on the merits as to whether Arthur G. Moody was legally domiciled in the Philippine Islands on the day of his death. Moody was never married and there is no doubt that he had his legal domicile in the Philippine Islands from 1902 or 1903 forward during which time he accumulated a fortune from his business in the Philippine Islands He lived in the Elks' Club in Manila for many years and was living there up to the date he left Manila the latter part of February, 1928, under the following circumstances: He was afflicted with leprosy in an advanced stage and been informed by Dr. Wade that he would be reported to the Philippine authorities for confinement in the Culion Leper Colony as required by the law. Distressed at the thought of being thus segregated and in violation of his promise to Dr. Wade that he would voluntarily go to Culion, he surreptitiously left the Islands the latter part of February, 1928, under cover of night, on a freighter, without ticket, passport or tax clearance certificate. The record does not show where Moody was during the remainder of the year 1928. He lived with a friend in Paris, France, during the months of March and April of the year 1929 where he was receiving treatment for leprosy at the Pasteur Institute. The record does not show where Moody was in the interval between April, 1929, and November 26, 1930, on which latter date he wrote a letter, Exhibit B, to Harry Wendt of Manila, offering to sell him mis interest in the Camera Supply Company, a Philippine corporation, in which Moody owned 599 out of 603 shares. In this letter, among other things, he states: "Certainly I'll never return there to live or enter business again." In this same letter he says:

I wish to know as soon as now (as to the purchase) for I have very recently decided either to sell or put in a line of school or office supplies ... before I go to the necessary investments placing any side lines, I concluded to get your definite reply to this ... I have given our New York buying agent a conditional order not to be executed until March and this will give you plenty of time ... anything that kills a business is to have it peddled around as being for sale and this is what I wish to avoid. He wrote letters dated December 12, 1930, and January 3, 1931, along the same line to Wendt. As Moody died of leprosy less than two months after these letters were written, there can be no doubt that he would have been immediately segregated in the Culion Leper Colony had he returned to the Philippine Islands. He was, therefore, a fugitive, not from justice, but from confinement in the Culion Leper Colony in accordance with the law of the Philippine Islands.

There is no statement of Moody, oral or written, in the record that he had adopted a new domicile while he was absent from Manila. Though he was physically present for some months in Calcutta prior to the date of his death there, the appellant does not claim that Moody had a domicile there although it was precisely from Calcutta that he wrote and cabled that he wished to sell his business in Manila and that he had no intention to live there again. Much less plausible, it seems to us, is the claim that he established a legal domicile in Paris in February, 1929. The record contains no writing whatever of Moody from Paris. There is no evidence as to where in Paris he had any fixed abode that he intended to be his permanent home. There is no evidence that he acquired any property in Paris or engaged in any settled business on his own account there. There is no evidence of any affirmative factors that prove the establishment of a legal domicile there. The negative evidence that he told Cooley that he did not intend to return to Manila does not prove that he had established a domicile in Paris. His short stay of three months in Paris is entirely consistent with the view that he was a transient in Paris for the purpose of receiving treatments at the Pasteur Institute. The evidence in the record indicates clearly that Moody's continued absence from his legal domicile in the Philippines was due to and reasonably accounted for by the same motive that caused his surreptitious departure, namely, to evade confinement in the Cullion Leper Colony for he doubtless knew that on his return he would be immediately confined, because his affliction became graver to us while he was absent than it was on the day of his precipitous departure and he could not conceal himself in the Philippines where he was well known, as he might do in foreign parts.

Our Civil Code (art. 40) defines the domicile of natural persons as "the place of their usual residence". The record before us leaves no doubt in our minds that the "usual residence" of this unfortunate man, whom appellant describes as a "fugitive" and "outcast", was in Manila where he had lived and toiled for more than a quarter of a century, rather than in any foreign country he visited during his wanderings up to the date of his death in Calcutta. To effect the abandonment of one's domicile, there must be a deliberate and provable choice of a new domicile, coupled with actual residence in the place chosen, with a declared or provable intent that it should be one's fixed and permanent place of abode, one's home. There is a complete dearth of evidence in the record that Moody ever established a new domicile in a foreign country.

The contention under the appellant's third assignment of error that the defendant collector illegally assessed an income tax of P13,001.41 against the Moody estate is, in our opinion, untenable. The grounds for this assessment, stated by the Collector of Internal Revenue in his letter, Exhibit NN, appear to us to be sound. That the amount of P59,986.69 was received by the estate of Moody as dividends declared out of surplus by the Camera Supply Company is clearly established by the evidence. The appellant contends that this assessment in taxation: First, because the corporation paid income tax on the same amount during the years it was accumulated as surplus; second, that an inheritance tax on the same amount was assessed against the estate, and third, the same amount is assessed as income of the estate. As to the first, it appears from the collector's assessment, Exhibit 11, to the collector allowed the estate a deduction of the normal income tax on said amount because it had already been paid at the source by the Camera Supply Company. The only income tax assessed against the estate was the additional tax or surtax that had not been paid by the Camera Supply Company for which the estate, having actually received the income, is clearly liable. As to the second alleged double taxation, it is clear that the inheritance tax and the additional income tax in question are entirely distinct. They are assessed under different statutes and we are not convinced by the appellant's argument that the estate which received these

dividends should not be held liable for the payment of the income tax thereon because the operation was simply the conversion of the surplus of the corporation into the property of the individual stockholders. (Cf. U.S. vs. Phellis, 257 U.S., 171, and Taft vs.Bowers, 278 U.S., 460.) Section 4 of Act No. 2833 as amended, which is relied on by the appellant, plainly provides that the income from exempt property shall be included as income subject to tax.Finding no merit in any of the assignments of error of the appellant, we affirm the judgment of the trial court, first, because the property in the estate of Arthur G. Moody at the time of his death was located and had its situs within the Philippine Islands and, second, because his legal domicile up to the time of his death was within the Philippine Islands. Costs against the appellant.

Malcolm, Villa-Real, and Imperial, JJ., concur.Separate Opinions

GODDARD, J., concurring:I concur in the result. I think the evidence clearly establishes that Moody had permanently abandoned his residence in the Philippine Islands. But even so, his estate would be liable for the takes which the plaintiff-appellant seeks to recover in this action. Section 1536 of the Revised Administrative Code makes no distinction between the estates of residents and of non-residents of the Philippine Islands. The case of First National Bank of Boston vs. State of Maine (284 U.S., 312; 76 Law. ed., 313), relied on by the appellant is not in point because in that case the estate of the deceased was actually taxed in both the state of his domicile, Massachusettes, and in the state where the shares of stock had their situs, namely, the State of Maine. But in the case before us there is no evidence whatever that the estate of Moody had been taxed anywhere but in the Philippines. (Cf. Burnet. Commissioner, vs. Brooks, 288 U.S., 378.)

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

G.R. No. L-46720             June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-appellant, vs.THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.

De Witt, Perkins and Ponce Enrile for appellant.Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee.Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as amici curiæ.

MORAN, J.:

An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.

Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized and existing under the laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly admitted to probate in California where her estate was administered and settled. Petitioner-appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created by the said will. The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent Collector of Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to which petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower court, with the statement that, "if it should be held by a final declaratory judgment that the transfer of the aforesaid shares of stock is legally subject to the Philippine inheritance tax, the petitioner will pay such tax, interest and penalties (saving error in computation) without protest and will not file to recover the same; and the petitioner believes and t herefore alleges that it should be held that such transfer is not subject to said tax, the respondent will not proceed to assess and collect the same." The Court of First Instance of Manila rendered judgment, holding that the transmission by will of the said 35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner.

Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible personal property of a non-resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident reason that, being a property situated in this country, its transfer is, in some way, defendant, for its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by death necessarily takes place under his domiciliary laws.

Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to the tax therein provided. This provision has already been applied to shares of stock in a domestic corporation which were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid down by the United States Supreme Court in four cases (Farmers Loan & Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371; Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75 Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401), to the effect that an inheritance tax can be imposed with respect to intangibles only by the State where the decedent was domiciled at the time of his death, and that, under the due-process clause, the State in which a corporation has been incorporated has no power to impose such tax if the shares of stock in such corporation are owned by a non-resident decedent. It is to be observed, however, that in a later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the United States Supreme Court upheld the authority of the Federal Government to impose an inheritance tax on the transmission, by death of a non-resident, of stock in a domestic (America) corporation, irrespective of the situs of the corresponding certificates of stock. But it is contended that the doctrine in the foregoing case is not applicable, because the due-process clause is directed at the State and not at the Federal Government, and that the federal or national power of the United States is to be determined in relation to other countries and their subjects by applying the principles of jurisdiction recognized in international relations. Be that as it may, the truth is that the due-process clause is "directed at the protection of the individual and he is entitled to its immunity as much against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was predicated on a proper regard for the relation of the states of the American Union, which requires that property should be taxed in only one state and that jurisdiction to tax is restricted accordingly. In other words, the application to the states of the due-process rule springs from a proper distribution of their powers and spheres of activity as ordained by the United States Constitution, and such distribution is enforced and protected by not allowing one state to reach out and tax property in another. And these considerations do not apply to the Philippines. Our status rests upon a wholly distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the Union with another or with the United States. The status of the Philippines has been aptly defined as one which, though a part of the United States in the international sense, is, nevertheless, foreign thereto in a domestic sense. (Downes vs. Bidwell, 182 U. S., 244, 341.)

At any rate, we see nothing of consequence in drawing any distinct between the operation and effect of the due-process clause as it applies to the individual states and to the national government of the United States. The question here involved is essentially not one of due-process, but of the power of the Philippine Government to tax. If that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the law involved is challenged, which is not, on considerations repugnant to such guaranty of due process of that of the equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or discriminatory.

Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs. Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of law, formulated for reasons of convenience, to the actualities of each case.

An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as o intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. It is on the basis of

the first consideration that the case of Burnetvs. Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of the Government to impose an inheritance tax upon transmission, by death of a non-resident, of shares of stock in a domestic (America) corporation, regardless of the situs of their corresponding certificates; and on the basis of the second consideration, the case of Cury vs. McCanless, supra.

In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax is precluded by the due-process clause of the Fifth Amendment, held:

The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are embodied in the due-process clause for the protection of life, liberty, and property of all persons — citizens and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473, 476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710; 52 A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S. Ct., 358. If in the instant case the Federal Government had jurisdiction to impose the tax, there is manifestly no ground for assailing it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747; MaGray vs. United States, 195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 U.S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312; Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; 414, Ann. Cas, 1917B, 713; United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.)

And, in sustaining the power of the Federal Government to tax properties within its borders, wherever its owner may have been domiciled at the time of his death, the court ruled:

. . . There does not appear, a priori, to be anything contrary to the principles of international law, or hurtful to the polity of nations, in a State's taxing property physically situated within its borders, wherever its owner may have been domiciled at the time of his death. . . .

As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds — the citizenship of the owner, his domicile, the source of income, the situs of the property — efforts have been made to preclude multiple taxation through the negotiation of appropriate international conventions. These endeavors, however, have proceeded upon express or implied recognition, and not in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon any one of these grounds. . . . (See pages 396-397; 399.)

In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and Tennessee may each constitutionally impose death taxes upon the transfer of an interest in intangibles held in trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciles in Tennessee, sustained the power of each State to impose the tax. In arriving at this conclusion, the court made the following observations:

In cases where the owner of intangibles confines his activity to the place of his domicile it has been found convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301 U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are taxed at their situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia sequuntur personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410, supra; Baldwin vs. Missouri, 281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303, supra, which means only that it is the identify owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the rule even workable substitute for the reasons may exist in any particular case to support the constitutional power of each state concerned to tax. Whether we regard the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over tangibles or over persons whose relationships are source of intangibles rights, or on the benefit and protection conferred by the taxing sovereignty, or both, it is undeniable that the state of domicile is not deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some or all of the taxpayer's intangibles. Shares or corporate stock be taxed at the domicile of the shareholder and also at that of the corporation which the taxing state has created and controls; and income may be taxed both by the state where it is earned and by the state of the recipient's domicile. protection, benefit, and power over the subject matter are not confined to either state. . . .(p. 1347-1349.)

. . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere mechanical operation of locating at a single place, and there taxing, every legal interest growing out of all the complex legal relationships which may be entered into between persons. This is the case because in point of actuality those interests may be too diverse in their relationships to various taxing jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and applied before the Fourteen Amendment was adopted, and still recognized by this Court as valid. (P. 1351.)

We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here involved is controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.

Judgment is affirmed, with costs against petitioner-appellant.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-11622             January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs.DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents.

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G.R. No. L-11668             January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner, vs.THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents.

BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left by the deceased Walter G. Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on August 9, 1874 of British parents and married in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson another British subject) died on February 22, 1951 in San Francisco, California, U.S.A. whereto he and his wife moved and established their permanent residence since May 10, 1945. In his will executed in San Francisco on May 22, 1947, and which was duly probated in the Superior Court of California on April 11, 1951, Stevenson instituted his wife Beatrice as his sole heiress to the following real and personal properties acquired by the spouses while residing in the Philippines, described and preliminary assessed as follows:

Gross Estate

Real Property — 2 parcels of land in Baguio, covered by T.C.T. Nos. 378 and 379 P43,500.00

Personal Property

(1) 177 shares of stock of Canacao Estate at P10.00 each 1,770.00

(2) 210,000 shares of stock of Mindanao Mother Lode Mines, Inc. at P0.38 per share 79,800.00

(3) Cash credit with Canacao Estate Inc. 4,870.88

(4) Cash, with the Chartered Bank of India, Australia & China           851.97

            Total Gross Assets P130,792.85On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of Manila for the settlement of the estate in the Philippines. In due time Stevenson's will was duly admitted to probate by our court and Ian Murray Statt was appointed ancillary administrator of the estate, who on July 11, 1951, filed a preliminary estate and inheritance tax return with the reservation of having the properties declared therein finally appraised at their values six months after the death of Stevenson. Preliminary return was made by the ancillary administrator in order to secure the waiver of the Collector of Internal Revenue on the inheritance tax due on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in the United States. Acting upon said return, the Collector of Internal Revenue accepted the valuation of the personal properties declared therein, but increased the appraisal of the two parcels of land located in Baguio City by fixing their fair market value in the amount of P52.200.00, instead of P43,500.00. After allowing the deductions claimed by the ancillary administrator for funeral expenses in the amount of P2,000.00 and for judicial and administration expenses in the sum of P5,500.00, the Collector assessed the state the amount of P5,147.98 for estate tax and P10,875,26 or inheritance tax, or a total of P16,023.23. Both of these assessments were paid by the estate on June 6, 1952.

On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return in pursuance f his reservation made at the time of filing of the preliminary return and for the purpose of availing of the right granted by section 91 of the National Internal Revenue Code.

In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. was reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total valuation of P79,800.00 to P42,000.00. This change in price per share of stock was based by the ancillary administrator on the market notation of the stock obtaining at the San Francisco California) Stock Exchange six months from the death of Stevenson, that is, As of August 22, 1931. In addition, the ancillary administrator made claim for the following deductions:

Funeral expenses ($1,04326) P2,086.52

Judicial Expenses:

(a) Administrator's Fee P1,204.34

(b) Attorney's Fee 6.000.00

(c) Judicial and Administration expenses as of August 9, 1952 1,400.05

8,604.39

Real Estate Tax for 1951 on Baguio real properties (O.R. No. B-1 686836) 652.50

Claims against the estate:($5,000.00) P10,000.00 P10,000.00

Plus: 4% int. p.a. from Feb. 2 to 22, 1951 22.47   10,022.47

Sub-Total P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests in the estate to the spouses, Douglas and Bettina Fisher, respondents herein.

On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax return (Exh. "M-N"). This return declared the same assets of the estate stated in the amended return of September 22, 1952, except that it contained new claims for additional exemption and deduction to wit: (1) deduction in the amount of P4,000.00 from the gross estate of the decedent as provided for in Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary administrator averred was allowable by way of the reciprocity granted by Section 122 of the National Internal Revenue Code, as then held by the Board of Tax Appeals in case No. 71 entitled "Housman vs. Collector," August 14, 1952; and (2) exemption from the imposition of estate and inheritance taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the reciprocity proviso of Section 122 of the National Internal Revenue Code. In this last return, the estate claimed that it was liable only for the amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a consequence, it had overpaid the government. The refund of the amount of P15,259.83, allegedly overpaid, was accordingly requested by the estate. The Collector denied the claim. For this reason, action was commenced in the Court of First Instance of Manila by respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said amount. Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals which court, after hearing, rendered decision the dispositive portion of which reads as follows:

In fine, we are of the opinion and so hold that: (a) the one-half (½) share of the surviving spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property should be deducted from the net estate of the deceased Walter G. Stevenson, pursuant to Section 89-C of the National Internal Revenue Code; (b) the intangible personal property belonging to the estate of said Stevenson is exempt from inheritance tax, pursuant to the provision of section 122 of the National Internal Revenue Code in relation to the California Inheritance Tax Law but decedent's estate is not entitled to an exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of estate and inheritance taxation the Baguio real estate of the spouses should be valued at P52,200.00, and 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. should be appraised at P0.38 per share; and (d) the estate shall be entitled to a deduction of P2,000.00 for funeral expenses and judicial expenses of P8,604.39.

From this decision, both parties appealed.

The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly committed by the trial court, while the assignees, Douglas and Bettina Fisher hereinafter called respondents, made six assignments of error. Together, the assigned errors raise the following main issues for resolution by this Court:

(1) Whether or not, in determining the taxable net estate of the decedent, one-half (½) of the net estate should be deducted therefrom as the share of tile surviving spouse in accordance with our law on conjugal partnership and in relation to section 89 (c) of the National Internal revenue Code;

(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the National Internal Revenue Code granting exemption from the payment of estate and inheritance taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc.;

(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S. Internal Revenue Code in relation to section 122 of the National Internal Revenue Code;

(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court;

(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and administration expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and P10,0,22.47 representing the amount of indebtedness allegedly incurred by the decedent during his lifetime; and

(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have overpaid the government and to be refundable to it.

In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the absence of any ante-nuptial agreement, the contracting parties are presumed to have adopted the system of conjugal partnership as to the properties acquired during their marriage. The application of this doctrine to the instant case is being disputed, however, by petitioner Collector of Internal Revenue, who contends that pursuant to Article 124 of the New Civil Code, the property relation of the spouses Stevensons ought not to be determined by the Philippine law, but by the national law of the decedent husband, in this case, the law of England. It is alleged by petitioner that English laws do not recognize legal partnership between spouses, and that what obtains in that jurisdiction is another regime of property relation, wherein all properties acquired during the marriage pertain and belong Exclusively to the husband. In further support of his stand, petitioner cites Article 16 of the New Civil Code (Art. 10 of the old) to the effect that in testate and intestate proceedings, the amount of successional rights, among others, is to be determined by the national law of the decedent.

In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place in 1909, the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil Code which became effective only in 1950. It is true that both articles adhere to the so-called nationality theory of determining the property relation of spouses where one of them is a foreigner and they have made no prior agreement as to the administration disposition, and ownership of their conjugal properties. In such a case, the national law of the husband becomes the dominant law in determining the property relation of the spouses. There is, however, a difference between the two articles in that Article 1241 of the new Civil Code expressly provides that it shall be applicable regardless of whether the marriage was celebrated in the Philippines or abroad while Article 13252 of the old Civil Code is limited to marriages contracted in a foreign land.

It must be noted, however, that what has just been said refers to mixed marriages between a Filipino citizen and a foreigner. In the instant case, both spouses are foreigners who married in the Philippines. Manresa,3 in his Commentaries, has this to say on this point:

La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y entre espanoles. El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es espanol. En cuanto a la regla procedente cuando dos extranjeros se casan en Espana, o dos espanoles en el extranjero hay que atender en el primer caso a la legislacion de pais a que aquellos pertenezean, y en el segundo, a las reglas generales consignadas en los articulos 9 y 10 de nuestro Codigo. (Emphasis supplied.)

If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons, married in 1909, would be the English law even if the marriage was celebrated in the Philippines, both of them being foreigners. But, as correctly observed by the

Tax Court, the pertinent English law that allegedly vests in the decedent husband full ownership of the properties acquired during the marriage has not been proven by petitioner. Except for a mere allegation in his answer, which is not sufficient, the record is bereft of any evidence as to what English law says on the matter. In the absence of proof, the Court is justified, therefore, in indulging in what Wharton calls "processual presumption," in presuming that the law of England on this matter is the same as our law.4

Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code) to bolster his stand. A reading of Article 10 of the old Civil Code, which incidentally is the one applicable, shows that it does not encompass or contemplate to govern the question of property relation between spouses. Said article distinctly speaks of amount of successional rights and this term, in speaks in our opinion, properly refers to the extent or amount of property that each heir is legally entitled to inherit from the estate available for distribution. It needs to be pointed out that the property relation of spouses, as distinguished from their successional rights, is governed differently by the specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the old Civil Code.) We, therefore, find that the lower court correctly deducted the half of the conjugal property in determining the hereditary estate left by the deceased Stevenson.

On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents from paying inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity proviso of Section 122 of the National Internal Revenue Code, in relation to Section 13851 of the California Revenue and Taxation Code, on the ground that: (1) the said proviso of the California Revenue and Taxation Code has not been duly proven by the respondents; (2) the reciprocity exemptions granted by section 122 of the National Internal Revenue Code can only be availed of by residents of foreign countries and not of residents of a state in the United States; and (3) there is no "total" reciprocity between the Philippines and the state of California in that while the former exempts payment of both estate and inheritance taxes on intangible personal properties, the latter only exempts the payment of inheritance tax..

To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified that as an active member of the California Bar since 1931, he is familiar with the revenue and taxation laws of the State of California. When asked by the lower court to state the pertinent California law as regards exemption of intangible personal properties, the witness cited article 4, section 13851 (a) and (b) of the California Internal and Revenue Code as published in Derring's California Code, a publication of the Bancroft-Whitney Company inc. And as part of his testimony, a full quotation of the cited section was offered in evidence as Exhibits "V-2" by the respondents.

It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to take judicial notice of them.5 Like any other fact, they must be alleged and proved.6

Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our tribunals. However, although we believe it desirable that these laws be proved in accordance with said rule, we held in the case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our Code of Civil Procedure (now section 41, Rule 123) will convince one that these sections do not exclude the presentation of other competent evidence to prove the existence of a foreign law." In that case, we considered the testimony of an attorney-at-law of San Francisco, California who quoted verbatim a section of California Civil Code and who stated that the same was in force at the time the obligations were contracted, as sufficient evidence to establish the existence of said law. In line with this view, we find no error, therefore, on the part of the Tax Court in considering the pertinent California law as proved by respondents' witness.

We now take up the question of reciprocity in exemption from transfer or death taxes, between the State of California and the Philippines.F

Section 122 of our National Internal Revenue Code, in pertinent part, provides:

... And, provided, further, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer of tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country." (Emphasis supplied).

On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.

"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt from the tax imposed by this part if the decedent at the time of his death was a resident of a territory or another State of the United States or of a foreign state or country which then imposed a legacy, succession, or death tax in respect to intangible personal property of its own residents, but either:.

(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal property of residents of this State, or

(b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident was exempt from legacy, succession, or death taxes of every character if the Territory or other State of the United States or foreign state or country in which the nonresident resided allowed a similar exemption in respect to intangible personal property of residents of the Territory or State of the United States or foreign state or country of residence of the decedent." (Id.)

It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to transfer or death taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death taxes of any and every character, in the case of the California law. Therefore, if any of the two states collects or imposes and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work. This is the underlying principle of the reciprocity clauses in both laws.

In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein, there are imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the laws of California, only inheritance tax is imposed. On the other hand, the Federal Internal Revenue Code imposes an estate tax on non-residents not citizens of the United States,7 but does not provide for any exemption on the basis of reciprocity. Applying these laws in the manner the Court of Tax Appeals did in the instant case, we will have a situation where a Californian, who is non-resident in the Philippines but has intangible personal properties here, will the subject to the payment of an estate tax, although exempt from the payment of the inheritance tax. This being the case, will a Filipino, non-resident of California, but with intangible personal properties there, be entitled to the exemption clause of the California law, since the Californian has not been exempted from every character of legacy, succession, or death tax because he is, under our law, under obligation to pay an estate tax? Upon the other hand, if we exempt the Californian from paying the estate tax, we do not thereby entitle a Filipino to be exempt from a similar estate tax in California because under the Federal Law, which is equally enforceable in California he is bound to pay the same, there being no reciprocity recognized in respect thereto. In both instances, the

Filipino citizen is always at a disadvantage. We do not believe that our legislature has intended such an unfair situation to the detriment of our own government and people. We, therefore, find and declare that the lower court erred in exempting the estate in question from payment of the inheritance tax.

We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller from payment of the inheritance tax imposed by the Collector of Internal Revenue. It will be noted, however, that the issue of reciprocity between the pertinent provisions of our tax law and that of the State of California was not there squarely raised, and the ruling therein cannot control the determination of the case at bar. Be that as it may, we now declare that in view of the express provisions of both the Philippine and California laws that the exemption would apply only if the law of the other grants an exemption from legacy, succession, or death taxes of every character, there could not be partial reciprocity. It would have to be total or none at all.

With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S. Federal Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our ruling in the Lara case (supra) that the amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature of a deduction and not of an exemption regarding which reciprocity cannot be claimed under the provision of Section 122 of our National Internal Revenue Code. Nor is reciprocity authorized under the Federal Law. .

On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is contended that their assessed values, as appearing in the tax rolls 6 months after the death of Stevenson, ought to have been considered by petitioner as their fair market value, pursuant to section 91 of the National Internal Revenue Code. It should be pointed out, however, that in accordance with said proviso the properties are required to be appraised at their fair market value and the assessed value thereof shall be considered as the fair market value only when evidence to the contrary has not been shown. After all review of the record, we are satisfied that such evidence exists to justify the valuation made by petitioner which was sustained by the tax court, for as the tax court aptly observed:

"The two parcels of land containing 36,264 square meters were valued by the administrator of the estate in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the assessed value of said properties. On the other hand, defendant appraised the same at P52,200.00. It is of common knowledge, and this Court can take judicial notice of it, that assessments for real estate taxation purposes are very much lower than the true and fair market value of the properties at a given time and place. In fact one year after decedent's death or in 1952 the said properties were sold for a price of P72,000.00 and there is no showing that special or extraordinary circumstances caused the sudden increase from the price of P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951. Even more, the counsel for plaintiffs himself admitted in open court that he was willing to purchase the said properties at P2.00 per square meter. In the light of these facts we believe and therefore hold that the valuation of P52,200.00 of the real estate in Baguio made by defendant is fair, reasonable and justified in the premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a domestic corporation), respondents contend that their value should be fixed on the basis of the market quotation obtaining at the San Francisco (California) Stock Exchange, on the theory that the certificates of stocks were then held in that place and registered with the said stock exchange. We cannot agree with respondents' argument. The situs of the shares of stock, for purposes of taxation, being located here in the Philippines, as respondents themselves concede and considering that they are sought to be taxed in this jurisdiction, consistent with the exercise of our government's taxing authority, their fair market value should be taxed on the basis of the price prevailing in our country.

Upon the other hand, we find merit in respondents' other contention that the said shares of stock commanded a lesser value at the Manila Stock Exchange six months after the death of Stevenson. Through Atty. Allison Gibbs, respondents have shown that at that time a share of said stock was bid for at only P.325 (p. 103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never been questioned nor refuted by petitioner either before this court or in the court below. In the absence of evidence to the contrary, we are, therefore, constrained to reverse the Tax Court on this point and to hold that the value of a share in the said mining company on August 22, 1951 in the Philippine market was P.325 as claimed by respondents..

It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis of the declaration made by the estate in its preliminary return. Patently, this should not have been the case, in view of the fact that the ancillary administrator had reserved and availed of his legal right to have the properties of the estate declared at their fair market value as of six months from the time the decedent died..

On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of which by the Tax Court, both petitioner and respondents have appealed..

Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the sum of P8,604.39 for the following expenses:.

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00

3) Judicial and Administrative expenses   2,052.55

            Total Deductions P8,604.39An examination of the record discloses, however, that the foregoing items were considered deductible by the Tax Court on the basis of their approval by the probate court to which said expenses, we may presume, had also been presented for consideration. It is to be supposed that the probate court would not have approved said items were they not supported by evidence presented by the estate. In allowing the items in question, the Tax Court had before it the pertinent order of the probate court which was submitted in evidence by respondents. (Exh. "AA-2", p. 100, record). As the Tax Court said, it found no basis for departing from the findings of the probate court, as it must have been satisfied that those expenses were actually incurred. Under the circumstances, we see no ground to reverse this finding of fact which, under Republic Act of California National Association, which it would appear, that while still living, Walter G. Stevenson obtained we are not inclined to pass upon the claim of respondents in respect to the additional amount of P86.52 for funeral expenses which was disapproved by the court a quo for lack of evidence.

In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on the decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the Tax Court, we find that this claim has in fact been allowed. What happened here, which a careful review of the record will reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:

1) Administrator's feeP1,204.

34

2) Attorney's fee6,000.0

0

3) Judicial and Administration expenses as of August 9, 1952

  2,052.5

5

            TotalP9,256.

89added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and administration expenses approved by the court, making a total of P2,052.55, exactly the same figure which was arrived at by the Tax Court for judicial and administration expenses. Hence, the difference between the total of P9,256.98 allowed by the Tax Court as deductions, and the P8,604.39 as found by the probate court, which is P652.50, the same amount allowed for realty taxes. An evident oversight has involuntarily been made in omitting the P2,000.00 for funeral expenses in the final computation. This amount has been expressly allowed by the lower court and there is no reason why it should not be. .

We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section 89(a) (1) (E) and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should have been allowed the estate as a deduction, because it represented an indebtedness of the decedent incurred during his lifetime. In support thereof, they offered in evidence a duly certified claim, presented to the probate court in California by the Bank of California National Association, which it would appear, that while still living, Walter G. Stevenson obtained a loan of $5,000.00 secured by pledge on 140,000 of his shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59, record). The Tax Court disallowed this item on the ground that the local probate court had not approved the same as a valid claim against the estate and because it constituted an indebtedness in respect to intangible personal property which the Tax Court held to be exempt from inheritance tax.

For two reasons, we uphold the action of the lower court in disallowing the deduction.

Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of the decedent is necessary. This is so although the same, it is averred has been already admitted and approved by the corresponding probate court in California, situs of the principal or domiciliary administration. It is true that we have here in the Philippines only an ancillary administration in this case, but, it has been held, the distinction between domiciliary or principal administration and ancillary administration serves only to distinguish one administration from the other, for the two proceedings are separate and independent.8 The reason for the ancillary administration is that, a grant of administration does not ex proprio vigore, have any effect beyond the limits of the country in which it was granted. Hence, we have the requirement that before a will duly probated outside of the Philippines can have effect here, it must first be proved and allowed before our courts, in much the same manner as wills originally presented for allowance therein.9 And the estate shall be administered under letters testamentary, or letters of administration granted by the court, and disposed of according to the will as probated, after payment of just debts and expenses of administration.10 In other words, there is a regular administration under the control of the court, where claims must be presented and approved, and expenses of administration allowed before deductions from the estate can be authorized. Otherwise, we would have the actuations of our own probate court, in the settlement and distribution of the estate situated here, subject to the proceedings before the foreign court over which our courts have no control. We do not believe such a procedure is countenanced or contemplated in the Rules of Court.

Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of Section 89, letter (d), number (1), of the National Internal Revenue Code which reads:

(d) Miscellaneous provisions — (1) No deductions shall be allowed in the case of a non-resident not a citizen of the Philippines unless the executor, administrator or anyone of the heirs, as the case may be, includes in the return required to be filed under section ninety-three the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines."

In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in the Philippines appears in the three returns submitted to the court or to the office of the petitioner Collector of Internal Revenue. The purpose of this requirement is to enable the revenue officer to determine how much of the indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of the Internal Revenue Code which provides:

(b) Deductions allowed to non-resident estates. — In the case of a non-resident not a citizen of the Philippines, by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines —

(1) Expenses, losses, indebtedness, and taxes. — That proportion of the deductions specified in paragraph (1) of subjection (a) of this section11 which the value of such part bears the value of his entire gross estate wherever situated;"

In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is equivalent to the proportion that the estate in the Philippines bears to the total estate wherever situated. Stated differently, if the properties in the Philippines constitute but 1/5 of the entire assets wherever situated, then only 1/5 of the indebtedness may be deducted. But since, as heretofore adverted to, there is no statement of the value of the estate situated outside the Philippines, no part of the indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d), number (1) of the Internal Revenue Code.

For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the alleged indebtedness in the sum of P10,022.47.

In recapitulation, we hold and declare that:

(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership property constitutes his hereditary estate subject to the estate and inheritance taxes;

(b) the intangible personal property is not exempt from inheritance tax, there existing no complete total reciprocity as required in section 122 of the National Internal Revenue Code, nor is the decedent's estate entitled to an exemption of P4,000.00 in the computation of the estate tax;

(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net asset of the deceased Stevenson.

In all other respects, the decision of the Court of Tax Appeals is affirmed.

Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a recomputation on the basis of this decision is hereby denied in line with our recent decision in Collector of Internal Revenue v. St. Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the absence of a statutory provision clearly or expressly directing or authorizing such payment, and none has been cited by respondents, the National Government cannot be required to pay interest."

WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is hereby affirmed in all other respects not inconsistent herewith. No costs. So ordered.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Gutierrez David, Paredes and Dizon, JJ., concur.

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

LUIS W. DISON, plaintiff-appellant, vs.JUAN POSADAS, JR., Collector of Internal Revenue, 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.

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 the Civil 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 in the 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 causa donations, 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 an interpretation 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 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.

G.R. No. L-15939             January 31, 1966

ANGELES UBALDE PUIG, ET AL., plaintiffs-appellants, vs.ESTELLA MAGBANUA PEÑAFLORIDA, ET AL., defendants-appellants.

REYES, J.B.L., J.:

Defendants-appellants Estela Magbanua Peñaflorida, et al., insist that the reservation by the donor of the right to dispose of the property during her lifetime in the deed of December 28, 1949 indicates that title had passed to the donee in her lifetime, otherwise, it is argued, the reservation would be superfluous, and they cite American authorities in support.

This thesis would be plausible if the reservation of the power to dispose were the only indication to be considered in deciding whether the donation of December 28, 1949 was mortis causa or inter vivos. But such is not the case. The Court in its decision took to account not only the foregoing circumstance but also the fact that the deceased expressly and consistently declared her conveyance to be one of donation mortis causa, and further forbade the registration of the deed until after her death. All these features concordantly indicated that the conveyance was not intended to produce any definitive effects, nor to finally pass any interest to the grantee, except from and after the death of the grantor.

We see nothing in the deed itself to indicate that any right, title or interest in the properties described was meant to be transferred to Doña Estela Magbanua prior to the death of the grantor, Carmen Ubalde Vda. de Parcon. Not ownership, certainly, for the stipulation:

Que esta escritura de donacion mortis causa no se registrara en la oficina del Registrador de Titulos de Iloilo sino despues del fallecimiento de la Donante

necessarily meant, according to section 50 of the Land Registration Act, that the deed in question should not take effect as a conveyance nor bind the land until after the death of the "donor".

Neither did the document operate to vest possession upon Doña Estela Magbanua, in view of the express condition that (paragraph 3) if at the date of her death the donor had not transferred, sold, or conveyed one-half of lot 58 of the Pototan Cadastre to other persons or entities, the donee would be bound to pay to Caridad Ubalde, married to Tomas Pedrola, the amount of P600.00, and such payment was to be made on the date the donee took possession of Lot No. 58. As the obligation to pay the legacy to Caridad Ubalde would not definitely arise until after the death of the donor, because only by then would it become certain that the "donor" could not transfer the property to someone else, and such payment must precede the taking possession of the property "donated", it necessarily follows that the "donee's" taking of possession could not occur before the death of the donor.

It being thus clear that the disposition contained in the deed is one that produces no effect until the death of the grantor, we are clearly faced by an act mortis causa of the Roman and Spanish law. We thus see no need of resorting to American authorities as to the import of the reservation of the donor's right to dispose of the donated property, for the Spanish authorities are very clear on this point:

Desde el momento en que la muerte del donante es la que determina la adquisicion o el derecho a los bienes; desde el montento en que la disposicion puede ser revocada voluntariamente, se salva la linea divisoria entre unos y otros actos: la donacion equivale a un legado; mas aun que esto: es un legado en realidad. (5 Manresa, 5th Ed., p. 107)

Ahora bien: si el mal llamado donante no solo dilata la fecha de la ejecucion para el momento de su muerte, sino que ademas se reserva la facultad de revocar a su arbitrio la disposicion, entonces el acto no es valido bajo la forma de contrato; hay en realidad una disposicion mortis causa que exige las solemnidades del testamento. (V Manresa, 5th Ed., p. 109) (Emphasis supplied)

The presence of an acceptance is but a consequence of the erroneous concept of the true nature of the juridical act, and does not indicate that in the same is a true donation inter vivos.

Appellant Magbanua further argues that the reserved power of the donor to convey the donated property to other parties during her lifetime is but a resolutory condition (albeit a potestative one) that confirms the passing of the title to the donee. In reality, this argument is a veritable petitio principii; it takes for granted what has to be proved, i.e., that some proprietary right has passed under the terms of the deed, which, as we have shown, is not true until the donor has died.

It is highly illuminating to compare the condition imposed in the deed of donation of December 28, 1949 with that established in the contract dealt with in Taylor vs. Uy Tieng Piao & Tau Liuan, 43 Phil. 874, invoked by appellants.

In the alleged deed of donation of December 28, 1949, the late Doña Carmen Ubalde imposed expressly that:

Que antes de su muerte, la Donante podra enajenar, vender, traspasar e hipotecar a cualesquiera personas o entidades los bienes aqui donados a favor de la Donataria en concepto de Donacion mortis causa.

In the Taylor vs. Uy Tieng Piao case, on the other hand, the condition read:

It is understood and agreed that should the machinery to be installed in said factory fail, for any reason, to arrive, in the City of Manila within the period of six (6) months from date hereof, this contract may be cancelled by the party of the second part at its option, such cancellation, however, not to occur before the expiration of such six (6) months. (pp. 874-875, cas. cit.).

In the Uy Tieng Piao case the contract could only be cancelled after six months, so that there could be no doubt that it was in force at least for that long, and the optional cancellation can be viewed as a resolutory condition (or more properly, a non-retroactive revocatory one); but no such restriction limited the power of the donor, Doña Carmen Ubalde, to set at naught the alleged conveyance in favor of Doña Estela Magbanua by conveying the property to other parties at any time, even at the very next instant after executing the donation, if she so chose. It requires no argument to demonstrate that the power, as reserved in the deed, was a power to destroy the donation at any time, and that it meant that the transfer is not binding on the grantor until her death made it impossible to channel the property elsewhere. Which, in the last analysis, as held in our main decision, signifies that the liberality is testamentary in nature, and must appear with the solemnities required of last wills and testaments in order to be legally valid.

Wherefore, the motion to reconsider is denied.