VOL.

18, NOVEMBER 24, 1966 757

Commissioner of Internal Revenue vs. Gonzales

No. L-19495. November 24, 1966.

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs. LlLIA YUSAY GONZALES and THE COURT OF TAX
APPEALS, respondents.

Courts; Appeals; Thirty-day period for appealing to Tax Court

begins from the date decision of Commissioner of Internal Revenue
was received.—In St. Stephen's Association vs. Collector of
Internal Revenue (L-11238, August 21, 1958), it was held that the
counting of the thirty days within which to institute an appeal in
the Court of Tax Appeals should commence "f rom the date of
receipt of the decision of the Commissioner on the disputed
assessment, not from the date the assessment was issued. When
the taxpayer received the decision of the Commissioner on March
14, 1960, the thirty-day period should begin from that date. From
said date to April 13, 1960, when the taxpayer filed his appeal in
the Court of Tax Appeals, is exactly thirty days. Hence, the appeal
was timely.
Same; Tax Court is the proper forum wherein to ventilate
defenses against tax assessment.—An action involving a disputed
assessment for internal revenue taxes falls within the exclusive
appellate jurisdiction of the Court of Tax Appeals (Sec. 7[1], Rep.
Act 1125; Blaquera vs. Rodriguez, 103 Phil. 267). It is in that
forum, to the exclusion of the Court of First Instance, where the
taxpayer can ventilate his or her defenses against the assessment.
Courts; Probate jurisdiction.—The probate court has a limited
jurisdiction, And under the Rules of Court, its authority relates
only to matters of estates and probate of wills of deceased persons.
It has had no jurisdiction to resolve questions of disputed tax
assessments.
Taxation; Evidence of fraud.—Fraud is a question of fact. The
circumstances constituting it must be alleged and proved in the
Court of Tax Appeals. And the finding of said court as to its
existence or nonexistence is final unless clearly shown to be
erroneous. (Gutierrez vs. Court of Tax Appeals, 101 Phil. 713). As
the court 'a quo found that no fraud was alleged
 758

758 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

and proven therein, the Commissioner's assertion that the return

was fraudulent cannot be entertained.
Same; When tax return is considered sufficient.—A return
need not be complete in all particulars. It is sufficient if it
complies substantially with the law. There is substantial
compliance (1) when the return is made in good faith and is not
false or fraudulent; (2) when it covers the entire period involved;
and (3) when it contains information as to the various items of
income, deductions and credits with such definiteness as to
permit the computation and assessment of the tax. (Mertens, Jr.,
10 Law of Federal Income Taxation, 1958 ed., Sec. 57.13).
Same; Sufficiency of estate and inheritance tax return.— An
estate and inheritance tax return was substantially defective
when it was incomplete; it declared only ninety-three parcels of
land, representing about 400 hectares, and left out ninety-two
parcels covering 503 hectares and said huge underdeclaration
could not have been the result 01 an oversight or mistake.
Moreover, the return mentioned no heir. Thus, no inheritance tax
could be assessed. As a matter of law, on the basis of the return,
there would be no occasion for the imposition of estate and
inheritance taxes. When there is no heir, the estate is escheated
to the State. The State does not tax itself.
Same; Sufficient tax return; Prescription.—Where the return
was made on the wrong form, it was held that the filing thereof
did not start the running of the period of limitations, and where
the return was very deficient, there was no return at all as
required in Section 93 of the Tax Code. If the taxpayer failed to
observe the law, Section 332 of the Tax Code, which grants the
Commissioner of Internal Revenue ten years period within which
to bring an action "f or tax collection, applies. Section 94 of the
Tax Code obligates him to make a return or amend one already
filed based on his own knowledge and information obtained
through testimony or otherwise, and subsequently to assess
thereon the taxes due. The running of the period of limitations
under Section 332(a) of the Tax Code should be reckoned "f rom
the date the "f raud was discovered.
Same; Taxpayer's willingness to pay does not bar him from
payment under protest
raising defenses against the legality.—The Tax Code does not bar
the right to contest the legality of the tax after a taxpayer pays it.
Under Section 306 thereof, he can pay the tax and claim a refund
therefor. A fortiori his willingness to pay the tax is no waiver of
his right to raise defenses against the legality of the tax.

Resolution on Motion for Reconsideration:

Taxation; Estate and inheritance taxes; Liability of estate for

said taxes.—Estate and inheritance taxes are satisfied from

759

VOL. 18, NOVEMBER 24, 1966 759

Commissioner of Internal Revenue vs. Gonzales

the estate of the decedent and are to be paid by the executor or

administrator thereof, Where there are two or more executors, all
of them are severally liable for the payment of the.estate tax. The
inheritance tax, although charged against the account of each
beneficiary, should be paid by the executor or administrator.

PETITION for review by certiorari of a decision of the

Court of Tax Appeals.
The facts are stated in the opinion of the Court.
     Solicitor General for the petitioner.
          Ramon A. Gonzales for respondent Lilia Yusay
Gonzales.

BENGZON, J.P., J.:

Matias Yusay, a resident of Pototan, Iloilo, died intestate

on May 13, 1948, leaving two heirs, namely, Jose S. Yusay,
a legitimate child, and Lilia Yusay Gonzales, an
acknowledged natural child. Intestate proceedings for the
settlement of his estate were instituted in the Court of
First Instance of Iloilo (Special Proceedings No. 459). Jose
S. Yusay was therein appointed administrator.'
On May 11, 1949 Jose S. Yusay filed with the Bureau of
Internal Revenue an estate and inheritance tax return
declaring therein the following properties:

Personal properties  
          Palay.......................... 6,444.00  
          Carabaos................... 1,000.00 P 7,444.00
Real properties:    
          Capital, 74      )    
               parcels      )    
                                   )    
          Conjugal 19      )    
               parcels           )    
assessed at ....... P179,760.00
Total gross estate ......... P187,204.00

The return mentioned no heir.

Upon investigation however the Bureau of Internal

Revenue found the following properties:

Personal properties:
          Palay........................ P 6,444.00
          Carabaos................ 1,500.00

760

760 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

          Packard Automobile ... 2,000.00  

          2 Aparadors 500.00 P 10,444.00
Real properties:    
          Capital, 25 parcels P 87,715.32  
assessed at .......
          1/2 of Conjugal, 130 P121,425.00 P209,140.32
parcels assessed at .....
Total .................................................. P219,584.32

The fair market value of the real properties was computed

by Increasing the assessed value by forty percent.
Based on the above findings, the Bureau of Internal
Revenue assessed on October 29, 1953 estate and
inheritance taxes in the sums of P6,849.78 and P16,970.63,
respectively.
On January 25, 1955 the Bureau of Internal Revenue
increased the assessment to P8,225.89 as estate tax and
P22,117.10 as inheritance tax plus delinquency interest
and demanded payment thereof on or before February 28,
1955. Meanwhile, on February 16, 1955, the Court of First
Instance of Iloilo required Jose S. Yusay to show proof of
payment of said estate and inheritance taxes.
 On March 3, 1955 Jose S. Yusay requested an extension
of time within which to pay the tax. He posted a surety
bond to guarantee payment of the taxes in question within
one year. The Commissioner of Internal Revenue however
denied the request. Then he issued a -warrant of distraint
and levy which he transmitted to the Municipal Treasurer
of Pototan for execution. This warrant was. not enforced
because all the personal properties subject to distraint
were located in lloilo City.
On May 20, 1955 the Provincial Treasurer of Iloilo
requested the BIR Provincial Revenue Officer to furnish
him copies of the assessment notices to support a motion
for payment of taxes which the Provincial Fiscal would file
in Special Proceedings No. 459 before the Court of First
Instance of Iloilo. The papers requested were sent by the
Commissioner of Internal Revenue to the Provincial
Revenue Officer of Iloilo to be transmitted to the Provincial
Treasurer, : The records do not however show
761

VOL. 18, NOVEMBER 24, 1966 761

Commissioner of Internal Revenue vs. Gonzales

whether the Provincial Fiscal filed a claim with the Court

of First Instance for the taxes due.
On May 30, 1956 the commissioner appointed by the
Court of First Instance for the purpose, submitted a
reamended project of partition which listed the following
properties:

Personal properties:    
          Buick Sedan ...... P 8,100.00  
          Packard car ........... 2,000.00  
          Aparadors ............ 500.00  
          Cash in Bank (PNB) .. 8,858.46  
          Palay .................. 6,444.00  
          Carabaos ........... 1,500.00 P 27,402.46
Real properties:    
          Land, 174 parcels ass P324,797.21  
essed at ...........
          Buildings .......................... 4,500.00 P329,297.21
Total.................................................................. P356,699.67
More than a year later, particularly on July 12, 1957, an
agent of the Bureau of Internal Revenue apprised the
Commissioner of Internal Revenue of the existence of said
reamended project of partition. Whereupon, the Internal
Revenue Commissioner caused the estate of Matias Yusay
to be reinvestigated for estate and inheritance tax liability,
Accordingly, on February 13, 1958. he issued the following
assessment:

Estate tax ............................... P 16,246.04

5% surcharge.......................... 411,29
Delinquency interest ................ 11,868.90
Compromise  
          No notice of death ................ P15.00  
          Late payment ....... 40.00 55.00
Total ................... P 28,581.23
Inheritance Tax .................. P 38,178.12
5% surcharge .................. 1,105.86
Delinquency interest ..................... 28,808.75
Compromise for late payment............... 50.00
Total.................................................... P 69,142.73

762

762 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

Total estate and inheritance taxes...... P 97,723.96

Like in previous assessments, the fair market value of the

real properties was arrived at by adding 40% to the
assessed value.
In view of the demise of Jose S. Yusay, said assessment
was sent to his widow, Mrs. Florencia Piccio Vda. de Yusay,
who succeeded him in the administration of the estate of
Matias Yusay.
No payment having been made despite repeated
demands, the Commissioner of Internal Revenue filed a
proof of claim for the estate and inheritance taxes due and
a motion for its allowance with the settlement court
invoking priority of lien pursuant to Section 315 of the Tax
Code.
 On June 1. 1959, Lilia Yusay, through her counsel,
Ramon Gonzales, filed - an answer to the proof of claim
alleging non-receipt of -the assessment of February 13,
1958, the existence of two administrators, namely,
FIorencia Piccio Vda. de Yusay who administered two-
thirds of the estate, and Lilia Yusay, who administered the
,remaining, one-third, and her willingness to, pay the taxes
corresponding to her share, and praying for deferment of
the resolution on the motion for the payment of taxes until
after a new ass\essment corresponding to her, share was
issued.
" On November 17, 1959 Lilia Yusay disputed the
legality of the assessment dated February 13, 1958. She
claimed that the right to make the same had prescribed
inasmuch as more than five years had elapsed since the
filing of the estate and inheritance tax return on May 11,
1949. She therefore requested that the assessment be
declared invalid and without force and effect. This request
was rejected by the Commissioner in his letter dated
January 20, 1960, received by Lilia Yusay on March 14,
1960, for the reasons, namely, (1) that the right to assess.
the taxes in question has not been lost by prescription since
the return which did not name the heirs cannot be
considered a true and complete return sufficient to start
the running of the period of limitations of five years under
Section 331 of the Tax Code and pursuant to Section 332 of
the same Code he has ten years within which to make the
763

VOL. 18, NOVEMBER 24, 1966 763

Commissioner of Internal Revenue vs. Gonzales

assessment counted from the discovery on September 24,

1953 of the identity of the heirs; and (2) that the estate's
administrator waived the defense of prescription when he
filed a surety bond on March 3, 1955 to guarantee payment
of the taxes in question and when he requested
postponement of the payment of the taxes pending
determination of who the heirs are by the settlement court.
On April 13, 1960 Lilia Yusay filed a petition for review
in the Court of Tax Appeals assailing the legality of the
assessment dated February 13, 1958. After hearing the
parties, said Court declared the right of the Commissioner
of Internal Revenue to assess the estate and inheritance
taxes in question to have prescribed and rendered the
following judgment:
"WHEREFORE, the decision of respondent assessing against the
estate of the late Matias Yusay estate and inheritance taxes is
hereby reversed. No costs."

The Commissioner of Internal Revenue appealed to this

Court and raises the following issues:

1. Was the petition for review in the Court of Tax

Appeals within the 30-day period provided for in
Section 11 of Republic Act 1125?
2. Could the Court of Tax Appeals take cognizance of
Lilia Yusay's appeal despite the pendency of the
"Proof of Claim” and. "Motion for Allowance of
Claim and for an Order of Payment of Taxes" filed
by the Commissioner of Internal Revenue in Special
Proceedings No. 459 before the Court of First
Instance of Iloilo?
3. Has the right of the Commissioner of Internal
,Revenue to assess the estate and inheritance taxes
in question prescribed?

On November 17, 1959 Lilia Yusay disputed the legality of

the assessment of February 13, 1958. On March 14, 1960
she received the decision of the Commissioner of Internal
Revenue on the disputed assessment, On April 13, 1960 she
filed her petition for review in the Court of Tax Appeals.
Said Court correctly held that the appeal was seasonably
interposed pursuant to Section 11 of Republic Act 1125. We
already ruled in St. Stephen's Asso-
764

764 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

1
ciation v. Collector of Internal Revenue, that the counting
of the thirty days within which to institute an appeal in the
Court of Tax Appeals should commence from the date of
receipt of the decision of the Commissioner on the disputed
assessment, not from the date the assessment was issued.
Accordingly, the thirty-day period should begin running
from March 14, 1960, the date Lilia Yusay received the
appealable decision. From said date to April 13, 1960, when
she filed her appeal in the Court of Tax Appeals, is exactly
thirty days. Hence, the appeal was timely.
Next, the Commissioner attacks the jurisdiction of the
Court of Tax Appeals to take cognizance of Lilia Yusay's
appeal on the ground of lis pendens. He maintains that the
pendency of his motion for allowance of claim and for order
of payment of taxes in the Court of First Instance of Iloilo
would preclude the Court of Tax Appeals from acquiring
jurisdiction over Lilia Yusay's appeal. This contention lacks
merit.
Lilia Yusay's cause seeks to resist the legality of the
assessment in question. Should she maintain it in the
settlement court or should she elevate her cause to the
Court of Tax Appeals? We say, she acted correctly by
appealing to the latter court. An action involving a
disputed assessment for internal revenue taxes falls within
2
the exclusive jurisdiction of the Court of Tax Appeals. It is
in that forum,
3
to the exclusion of the Court of First
Instance, where she could ventilate her defenses against
the assessment.
Moreover, the settlement court, where the
Commissioner would wish Lilia Yusay to contest the4
assessment, is of limited jurisdiction. And under the Rules,
its authority relates only to matters having to do with the
settlement of

_______________

1 L-11238, August 21, 1958. See also Baguio Country Club Corporation
v. Collector of Internal Revenue, et al., L-11419, April 22, 1959.
2 Sec. 7(1), Rep. Act 1125; Blaquera v. Rodriguez, L-11295, March 29,
1958.
3 Castro v. Blaquera, L-8429, February 28, 1957, 53 O.G. 2135;
Ledesma v. Court of Tax Appeals, 102 Phil. 931.
4 Rules 74-92, now Rules 73-91, Rules of Court.

765

VOL. 18, NOVEMBER 24, 1966 765

Commissioner of Internal Revenue vs. Gonzales

5
estates and probate of wills of deceased persons. Said court
has no jurisdiction to adjudicate the contentions in
question, which .—assuming they do not come exclusively
under the Tax Court's cognizance—must be submitted to
the Court of6 First Instance in the exercise of its general
jurisdiction.
We now come to the issue of prescription, Lilia Yusay
claims that since the.latest assessment was issued only on
February 13, 1958 or eight years, nine months and two
days from the filing of the estate and inheritance tax
return, the Cammissioner's right to make it has expired.
She would rest her stand on Section 331 of the Tax Code
which limits the right of the Commissioner to assess the
tax within five years from the filing of the return,
The Commissioner claims that fraud attended the filing
of the return; that this
7
being so, Section 332 (a) of the Tax:
Code would apply. It may be well to note that the
assessment letter itself (Exhibit 22) did not impute fraud in
the return with intent to evade payment of tax. Precisely,
no surcharge for fraud was. imposed. In his answer to the
petition for review filed by Lilia Yusay in the Court of Tax
Appeals, the Commissioner alleged no fraud. Instead, he
broached the insufficiency of the return as barring the
commencement of the running of the statute of limitations.
He raised the point of fraud for the first time in the
proceedings, only in his memorandum filed with the Tax
Court subsequent to resting his case. Said Court rejected
the plea of fraud for lack of allegation and proof, and ruled
that the return, although not accurate, was sufficient to
start the period of prescription. 8
Fraud is a question of fact. The circumstances
constituting
9
it must be alleged and proved in the court
below. And the finding of said court as to its existence and 10
nonexistence is final unless clearly shown to be erroneous,

_______________

5 Adapon v. Maralit, 69 Phil. 383, 387.

6 Guzman v. Anog and Anog, 37 Phil. 62.
7 Brief for Petitioner, p. 26.
8 Collector of Internal Revenue v. Bautista, L-12250 and L-12259, May
27, 1959.
9 Gutierrez v. Court of Tax Appeals, L-9738 and L-9771, May 31, 1957.
10 Perez v. Court of Tax Appeals, L-9738, May 31, 1957.

766

766 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

As the court a quo found that no fraud was alleged and

proved therein, We see no reason to entertain the
Commissioner's assertion that the return was fraudulent.
The conclusion, however, that the return filed by Jose S.
Yusay was sufficient to commence the running of the
prescriptive period under Section 331 of the Tax Code rests
on no solid ground.
Paragraph (a) of Section 93 of the Tax Code lists the
requirements of a valid return. It states:
"(a) Requirements.—In all cases of inheritance or transfers subject
to either the estate tax or the inheritance tax, or both, or where,
though exempt "f rom both taxes, the gross value of the estate
exceeds three thousand pesos, the executor, administrator, or
anyone of the heirs, as the case may be, shall file a return under
oath in duplicate, setting forth (1) the value of the gross estate of
the decedent at the time of his death,
*
or, in case of a nonresident
not a citizen of the Philippines ; (2) the deductions allowed from
gross estate in determining net estate as defined in section eighty-
nine; (3) such part of such information as may at the time be
ascertainable and such supplemental data as may be necessary to
establish the correct taxes."

A return need not be complete in all particulars. It is

sufficient if it complies substantially with the law. There is
substantial compliance (1) when the return is made in good
faith and is not false or fraudulent; (2) when it covers the
entire period involved; and (3) when it contains information
as to the various items of income, deduction and credit with
such definiteness as11 to permit the computation and
assessment of the tax.
There is no question that the state and inheritance tax
return filed by Jose S. Yusay was substantially defective.
First, it was incomplete. It declared only ninety-three
parcels of land representing about 400 hectares and left out
ninety-two parcels covering 503 hectares, Said huge
underdeclaration could not have been, the result of an
oversight or mistake. As found in L-11378, supra note 7,
Jose S. Yusay very well knew of the existence of the omit-

_______________

11 Jacob Mertens, Jr., The Law of Federal Income Taxation, 1958 ed.,
Vol. 10, Section 57.13.
* Editors Note: This phrase should be "in case of a nonresident not a
citizen of the Philippines of part of his gross estate in the Philippines."

767

VOL. 18, NOVEMBER 24, 1966 767

Commissioner of Internal Revenue vs. Gonzales

ted properties. Perhaps his motive in underdeclaring the

inventory of properties attached to the return was to
deprive Lilia Yusay from inheriting her legal share in the
hereditary estate, but certainly not because he honestly
believed that they did not form part of the gross estate.
 Second, the return mentioned no heir. Thus, no
inheritance tax could be assessed. As a matter of law, on
the basis of the return, there would be no occasion for the
imposition of estate and inheritance taxes. When there is
no heir .—the return showed
12
none .—the intestate estate is
escheated to the State. The State taxes not itself.
In a case where the return was made on the wrong form,
the Supreme Court of the United States held that the filing
thereof did13 not start the running of the period of
limitations. The reason is that the return submitted did
not contain the necessary information required in the
correct form. In this jurisdiction, however, the Supreme
Court ref rained "f rom applying the said ruling of the
United States Supreme Court in Collector of Internal
Revenue v. Central Azucarera de Tarlac, L-1 1760-61, July
31, 1958, on the ground that the return was complete in
itself although inaccurate. To our mind, it would not make
much difference where a return is made on the correct form
prescribed by the Bureau of Internal Revenue if the data
therein required are not supplied by the taxpayer. Just the
same, the necessary information for the assessment of the
tax would be missing.
The return filed in this case was so deficient that it
prevented the Commissioner from computing the taxes due
on the estate. It was as though no return was made. The
Commissioner had to determine and assess the taxes on
data obtained, not from the return, but from other sources.
We therefore hold the view that the return in question was
no return at all as required in Section 93

_______________

12 Articles 1011-1014, Civil Code. Rule 91, Rules of Court.

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

768

768 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

of the Tax Code.

The law imposes upon the taxpayer the burden of
supplying by the return the
14
information upon which an
assessment would be based. His duty complied with, the
taxpayer is not bound to do anything more than to wait for
the Commissioner to assess the tax. However, he is not
required to wait forever. Section 331 of the Tax Code gives
the Commissioner
15
five years within which to make his
assessment. Except, of course, if the taxpayer failed to
observe the law, in which case Section 332 of the same
Code grants the Commissioner a longer period. Non-
observance consists in filing a false or fraudulent return
with intent to evade the tax or in filing no return at all.
Accordingly, for purposes of determining whether or not
the Commissioner's assessment of February 13, 1958 is
barred by prescription, Section 332 (a) which is an 16
exception to Section 331 of the Tax Code finds application.
We quote Section 332 (a):

"SEC. 332. Exceptions as to period of limitation of assessment and

collection of taxes.—(a) In the case of a false or fraudulent return
with intent to evade tax or of a failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within ten years
after the discovery of the falsity, fraud or omission."

As stated, the Commissioner came to know of the identity

of the heirs on September 24, 1953 and the huge
underdeclaration in the gross estate on July 12, 1957. From
the latter date, Section 94 of the Tax Code obligated him to
make a return or amend one already filed based on his/own
knowledge and information obtained through testimony or
otherwise, and subsequently to assess thereon the taxes
due. The running of the period of limitations under Section
332(a) of the Tax Code should therefore

_______________

14 Florsheim Brothers Dry-Goods Company, Ltd. v. United States, 280

U.S. 453, 74 L. ed. 542, 547.
15 Republic of the Philippines v. Lim De Yu, L-17438, April 30, 1964.
16 Taligaman Lumber Co. v. Collector of Internal Revenue, L-15717,
March 31, 1962; Tan Tiong Bio, et al. v. Commissioner of Internal
Revenue, L-15778, April 23, 1962.

769

VOL. 18, NOVEMBER 24, 1966 769

Commissioner of Internal Revenue vs. Gonzales

be reckoned from said date for, as aforesaid, it is from that

time that the Commissioner was expected by law to make
his return and assess the tax due thereon. From July 12,
1957 to February 13, 1958, the date of the assessment now
in dispute, less than ten years have elapsed. Hence,
prescription did not abate the Commissioner's right to
issue said assessment.
Anent the Commissioner's contention that Lilia Yusay is
estopped from raising the defense of prescription because
she failed to raise the same in her answer to the motion for
allowance of claim and for the payment of taxes filed in the
settlement court (Court of First Instance of Iloilo), suffice it
to state that it would be unjust to the taxpayer if We were
to sustain such a view. The Court of First Instance acting
as a settlement court is not the proper tribunal to pass
upon such defense, therefore it would be but futile to raise
it therein. Moreover, the Tax Code does not bar the right to
contest the legality of the tax after a taxpayer pays it.
Under Section 306 thereof, he can pay the tax and claim a
refund therefor. A fortiori his willingness to pay the tax is
no waiver to raise def enses against the tax's legality.'
WHEREFORE, the judgment appealed from is set aside
and another entered affirming the assessment of the
Commissioner of Internal Revenue dated February 13,
1958. Lilia Yusay Gonzales, as administratrix of the
intestate estate of Matias Yusay, is hereby ordered to pay
the sums of P16,246.04 and P39,178.12 as estate and
inheritance taxes, respectively, plus interest and surcharge
for delinquency in accordance with Section 101 of the
National Internal Revenue Code, without prejudice to
reimbursement from her co-administratrix, Florencia Piccio
Vda. de Yusay for the latter's corresponding tax liability.
No costs. So ordered.

          Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon,

Regala, Makalintal, Sanchez and Castro, JJ., concur.
     Zaldivar, J., took no part.

Judgment set aside.

770

770 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

RESOLUTION
ON MOTION FOR RECONSIDERATION

April 24, 1967

BENGZON, J.P., J.:

Respondent Lilia Yusay Gonzales seeks reconsideration of

our decision holding her liable for the payment of
P97,723.96 as estate and inheritance taxes plus
delinquency penalties as administratrix of the intestate
estate of Matias Yusay. The grounds raised by her deserve
this extended resolution.
Firstly, movant maintains that the issue of whether or
not the estate and inheritance tax return filed by Jose
Yusay on May 13, 1949 was sufficient to start the running
of the statute of limitations on assessment, was neither
raised in the Court of Tax Appeals nor assigned as error
before this Court. The records in the Court of Tax Appeals
however show the contrary. Paragraph 2 of the answer
filed by the Commissioner of Internal Revenue states:

"2. That he likewise admits, as alleged in paragraph 1 thereof

having received the letter of the petitioner dated November 27,
1959 (Annex "A" of the Petition for Review), contesting the
assessment of estate and inheritance taxes levied against the
Intestate Estate of the late Matias Yusay, Special Proceedings No.
459, Court of First Instance of Iloilo, on the ground that the said
assessment has already prescribed, but specifically denies the
allegations that the assessments have already prescribed, the
truth of the matter being that the returns filed on May 11, 1949
cannot be considered as a true, and complete return sufficient to
start the running of the period of five (5) years prescribed in Sec.
331 of the Tax Code;"

This point was discussed in the memorandum of the

Commissioner of Internal Revenue, thus:

"In the estate and inheritance tax return filed by Jose S. Yusay
(Exhibits B & 1, pp. 14-20, B.I.R. records) the net value of the
estate of the deceased was claimed to be P203,354.00 and no
inheritance tax was shown as the heirs were not indicated. In the
final computation of the estate by an examiner of the respondent,
the net estate was found to be worth P410,518.38 (p. 105, B.I.R.
records) or about more than twice the original

771

VOL. 18, NOVEMBER 24, 1966 771

Commissioner of Internal Revenue vs. Gonzales

amount declared in the return. In the subsequent investigation of

this case, it was also determined that the heirs of the deceased
were Jose S. Yusay, a legitimate son, and Lilia Yusay, an
acknowledged natural child, (petitioner herein).
"Under the circumstances, we believe the return filed on May
11, 1949 was false or fraudulent in the sense that the value of the
properties were underdeclared and that the said return was also
incomplete as the heirs to the estate were not specified. Inasmuch
as the respondent was not furnished adequate data upon which to
base an assessment, the said return cannot be considered a true
and complete return sufficient to start the running of the period of
limitations of five (5) years prescribed in Section 331 of the Tax
Code."

In the lower court the defense of the Commissioner of

Internal Revenue against Lilia Yusay Gonzales' plea of
prescription, centered on the insufficiency and fraudulence
or falsity of the return filed by Jose Yusay. The Court of
Tax Appeals overruled the Commissioner of Internal
Revenue. Said the Tax Code:

"The provision of Section 332(a) of the Tax Code cannot be

invoked in this case as it was neither alleged in respondent's
answer, nor proved during the hearing that the return was false
or fraudulent with intent to evade the payment of tax. Moreover,
the failure of respondent to charge fraud and impose the penalty
thereof in the assessments made in 1953, 1955 and 1956 is an
eloquent demonstration that the filing of petitioner's transfer tax
return was not attended by falsity or fraud with intent to evade
tax.
x x x      x x x      x x x
"But respondent urges upon us that the filing of the return did
not start the running of the five (5) year period for the reason that
the return did not disclose the heirs of the deceased Matias
Yusay, and contained inadequate data regarding the value of the
estate. We believe that these mere omissions do not require
additional returns for the same. Altho incomplete for being def
icient on these matters, the return cannot be regarded as a case of
failure to file a return where want of good faith and intent to
evade the tax on the part of petitioner are not charged. It served
as a sufficient notice to the Commissioner of Internal Revenue to
make his assessment and start the running of the period of
limitation. In this connection, it must be borne in mind that the
Commissioner is not confined to the taxpayer's return in making
assessment of the tax, and for this purpose he may secure
additional information "f rom other sources. As was done in the
case at bar, he sends investigators to examine the taxpayer's
records and other pertinent data. His assessment is based upon
the facts uncovered by the investigation

772
772 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Gonzales

(Collector vs. Central Azucarera de Tarlac, G.R. Nos. L-11760 and

L-11761, July 31, 1958).
"Furthermore, the failure to state the heirs in the return can
be attributed to the then unsettled conflict raging before the
probate court as to who are the heirs of the.estate. Such failure
could not have been a deliberate attempt to mislead the
government in the assessment of the correct taxes."

In his appeal, the Commissioner of Internal Revenue

assigned as third error of the Court of Tax Appeals the
finding that the assessment in question was "made beyond
the five-year statutory period provided in Section 332(a) of
the Tax Code," and that the right of the Commissioner of
Internal Revenue to assess the estate and inheritance taxes
has already prescribed. To sustain his side, the
Commissioner ventilated in his brief, fraud in the filing of
the return, absence of certain data from the return which
prevented him from assessing thereon the tax due and the
pendency in this Court of L-11374 entitled "Intestate
Estate of the late Matias Yusay, Jose C. Yusay,
Administrator vs. Lilia Yusay Gonzales" which allegedly
had the effect of suspending the running of the period of
limitations on assessment.
Clearly, therefore, it would be incorrect to say that the
question of whether or not the return filed by Jose Yusay
was. suf ficient to start the running of the statute of
limitations to assess the corresponding tax, was not raised
by the Commissioner in the Court of Tax Appeals and in
this Court.
Second. Movant contends that contrary to Our ruling,
the return filed by Jose Yusay was sufficient to start the
statute of limitations on assessment. Inasmuch as this
question was amply discussed in Our decision sought to be
reconsidered, and no new argument was advanced, We
deem it unnecessary to pass upon the same. There is no
reason for any change on Our stand on this point.
Third. Movant insists that since she administers only
one-third of the estate of Matias Yusay, she should not be
liable for the whole tax. And she suggests that We hold the
intestate estate of Matias Yusay liable for said takes, one-
third to be paid by Lilia Yusay Gonzales and two-thirds to
be paid by Florencia P. Vda. de Yusay.
773
 VOL. 18, NOVEMBER 24, 1966 773
Commissioner of Internal Revenue vs. Gonzales

The foregoing suggestion to require payment of twothirds

of the total taxes by Florencia P. Vda. de Yusay is not
acceptable, for she (Florencia P. Vda. de Yusay) is not a
party in this case.
It should be pointed out that Lilia Yusay Gonzales
appealed the whole assessment to the Court of Tax
Appeals. Thereupon, the Commissioner of Internal
Revenue questioned her legal capacity to institute the
appeal on the ground that she administered only one-third
of the estate of Matias Yusay. In opposition, she espoused
the -view, which was sustained by the Tax Court, that in
co-administration, the administratrices are regarded as one
person and the acts of one of them in relation to the regular
administration of the estate are deemed to be the acts of
all; hence, each administratrix can represent the whole
estate. In advancing such proposition. Lilia Yusay Gonzales
represented the whole estate and hoped to benefit from the
favorable outcome of the case. For the same reason that she
represented her co-administratrix and the whole estate of
Matias Yusay, she risked being ordered to pay.the whole
assessment, should the assessment be sustained.
Her change of stand adopted in the motion for
reconsideration to the effect that she should be made liable
for only one-third of the total tax, would negate her
aforesaid proposition before the. Court of Tax Appeals. She
is now estopped from denying liability for the whole tax.
At any rate, estate and inheritance taxes are satisfied
from the estate.
1
and are to be paid by the executor or
administrator. Where there are two or more executors, all
of them
2
are severally liable for the payment of the estate
tax.. The inheritance tax, although charged against the
account of each beneficiary,
3
should be paid by the executor
or administrator. Failure to pay the estate and

_______________

1 Section 95 (a) (1), Tax Code.

2 Baldwin v. Commissioner of Internal Revenue, 94 F. 2d 355, 20 AFTR
940.
3 Jose Arañas, Annotations and Jurisprudence on the National Internal
Revenue Code, As Amended, Second Edition, 1963, Vol. I, p. 630.

774

774 SUPREME COURT REPORTS ANNOTATED

 People vs. Damaso

inheritance taxes before distribution of the estate would

subject the executor or administrator to criminal liability
under Section 107 (c) of the Tax Code.
It is immaterial therefore that Lilia Yusay Gonzales
administers only one-third of the estate and will receive as
her share only said4
portion, for her right to the estate
comes after taxes. As an administratrix, she is liable for
the entire estate tax. As an heir, she is liable for the entire
inheritance tax although her liability
5
would not exceed the
amount of her share in the estate. The entire inheritance
tax which amounts to P39,178.12 excluding penalties is
obviously much less than her distributive share.
Motion for reconsideration denied.

          Concepcion, C.J., Reyes, J.B.L., Dizon, Regala,

Makalintal, Sanchez and Castro, JJ., concur.
     Zaldivar, J., did not take part.

Motion denied.

Notes.—As to the rule that fraud is a factual question,

see Republic vs. Ker & Co., Ltd. L-21609, Sept. 29, 1966,
ante.
As to the computation of the thirty-day period, see
Republic vs. Lim Tian Teng :& Sons Co., Inc., L-21731,
March 31, 1966, 16 Supreme Court Reports Annotated 597.

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