CIR v. CA and Pajonar G.R. No. 1232 !

"arc# 22$ 2

Tax Law; Deductions; Case No. 1 %rancis &avier 'inon

Doctrine( [Judicial Expenses] Expenses on extrajudicial settlement of the estate are allowed as deductions. They come within the meaning of administration expenses.

%ACT'( By reason of the Bataan Death March during orld ar !!" #edro #ajonar $ecame insane. #ri%ate respondent Josefina #ajonar" his sister" $ecame the guardian of the person of decedent #edro #ajonar. The property of the decedent was put $y the &T'( Dumaguete" under the guardianship of the #hilippine )ational Ban* %ia special proceeding" wherein P) $ was spent therein for payment of attorney+s fees. hen the decedent died" instead of filing an estate tax return" #)B ad%ised Josefina to extra(judicially settle the estate of his $rother. The decedent+s estate was extra(judicially settled and the heirs paid an amount of P! $ *)3 for the notari,ation of the deed of extra(judicial settlement of estate. -owe%er" B!& su$se.uently assessed deficiency taxes against the decedent/s estate $ecause the amount paid in the special proceeding #01" 111 for attorney/s fees and the notari,ation fee of #21" 304 cannot $e claimed as a deduction. #ri%ate respondent #ajonar paid the said taxes under protest. hile the case is under re%iew $y the B!&" she filed a claim for refund in the 'T5 which was granted. The 'T5 ordered the 'ommissioner of !nternal &e%enue to refund Josefina #606"070.08" representing erroneously paid estate tax for the year 9877. A+on, t#e deductions -ro+ t#e ,ross estate a..owed /0 t#e CTA were P! $*)3 re1resentin, t#e notaria. -ee -or t#e 2xtrajudicia. 'ett.e+ent and t#e a+ount o- P) $ as t#e attorne03s -ees -or ,uardians#i1 1roceedin,s. '!& filed a M& which the 'T5 denied. !t then filed with the '5 a petition for re%iew which was also denied -ence" the present appeal. I''42( hether the notarial fee paid for the extrajudicial settlement in the amount of #21"304 and the attorney+s fees in the guardianship proceedings in the amount of #01"111 may $e allowed as deductions from the gross estate of decedent in order to arri%e at the %alue of the net estate. 52LD( 62'. The notaria. -ee paid for the extrajudicial settlement is a deducti$le expense since such settlement effected a distri$ution of #edro/s estate to his lawful heirs. :imilarly" attorne03s -ees paid to #)B for acting as the guardian of #edro/s property during his lifetime should also $e considered as a deducti/.e ad+inistration ex1ense. This is $ecause #)B pro%ided a detailed accounting of decedent+s property and ga%e ad%ice as to the proper settlement of the latter+s estate" acts which contri$uted towards the collection of decedent+s assets and the su$se.uent settlement of the estate. Ad+inistration ex1enses$ as an a..owa/.e deduction -ro+ t#e ,ross estate of the decedent for purposes of arri%ing at the %alue of the net estate" #ave /een construed $y the federal and state courts of the 4nited 'tates to inc.ude a.. ex1enses 7essentia. to t#e co..ection o- t#e assets$ 1a0+ent o- de/ts or t#e distri/ution o- t#e 1ro1ert0 to t#e 1ersons entit.ed to it.; !n other words" the expenses must $e essential to the proper settlement of the estate. This 'ourt adopts the %iew under 5merican jurisprudence that expenses incurred in the extrajudicial settlement of the estate should $e allowed as a deduction from the gross estate. There is no re.uirement of formal administration. !t is su--icient t#at t#e ex1ense /e a necessar0 contri/ution toward t#e sett.e+ent o- t#e case.