Collector of Internal Revenue vs. Fisher

In determining the taxable net estate of a non-resident alien decedent, one-half of the conjugal partnership property must be deducted as the surviving spouse's share where the applicable foreign law on property relations has not been proven, triggering processual presumption; and the reciprocity exemption from death taxes on intangible personal property under Section 122 of the NIRC requires total reciprocity—exemption from transfer, death, legacy, or succession taxes of every character—which does not exist where one jurisdiction imposes both estate and inheritance taxes while the other imposes only inheritance tax and federal law imposes estate tax without reciprocity.

Walter G. Stevenson, born in the Philippines on August 9, 1874 to British parents, married Beatrice Mauricia Stevenson, also a British subject, in Manila on January 23, 1909. During their marriage, the spouses acquired real and personal properties in the Philippines. In May 1945, they moved to San Francisco, California, and established permanent residence there. Stevenson executed his will in San Francisco on May 22, 1947, instituting his wife as sole heiress. He died on February 22, 1951 in San Francisco. His will was probated in the Superior Court of California on April 11, 1951, and ancillary administration proceedings were thereafter instituted in the Court of First Instance of Manila for settlement of the estate in the Philippines. On December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests in the estate to spouses Douglas and Bettina Fisher.

Walter G. Stevenson, born in the Philippines on August 9, 1874 to British parents, married Beatrice Mauricia Stevenson, also a British subject, in Manila on January 23, 1909. During their marriage, the spouses acquired real and personal properties in the Philippines, including two parcels of land in Baguio City covered by T.C.T. Nos. 378 and 379, 177 shares of stock in Canacao Estate, 210,000 shares of stock in Mindanao Mother Lode Mines, Inc., cash credits with Canacao Estate Inc., and cash with the Chartered Bank of India, Australia & China, with a total preliminary assessed value of P130,792.85. In May 1945, the spouses moved to San Francisco, California, and established their permanent residence there. Stevenson executed his will in San Francisco on May 22, 1947, instituting his wife Beatrice as his sole heiress. He died on February 22, 1951 in San Francisco, and his will was duly probated in the Superior Court of California on April 11, 1951.

On 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. The will was admitted to probate, and Ian Murray Statt was appointed ancillary administrator. On July 11, 1951, Statt filed a preliminary estate and inheritance tax return, reserving the right to have the properties finally appraised at their values six months after Stevenson's death. The preliminary return was filed to secure the Collector of Internal Revenue's waiver of the inheritance tax due on the 210,000 shares of stock in Mindanao Mother Lode Mines, Inc., which the estate desired to dispose of in the United States. The Collector accepted the valuation of the personal properties but increased the appraisal of the two Baguio parcels from P43,500.00 to P52,200.00. After allowing deductions for funeral expenses (P2,000.00) and judicial and administration expenses (P5,500.00), the Collector assessed the estate P5,147.98 for estate tax and P10,875.26 for inheritance tax, totaling P16,023.23, which the estate paid on June 6, 1952.

On September 27, 1952, the ancillary administrator filed an amended return pursuant to his earlier reservation and to avail of the right granted by Section 91 of the National Internal Revenue Code. In this amended return, the valuation of the 210,000 shares was reduced from P0.38 per share (P79,800.00 total) to P0.20 per share (P42,000.00 total), based on the market quotation at the San Francisco Stock Exchange six months after Stevenson's death, i.e., as of August 22, 1951. Additional deductions were claimed for funeral expenses (P2,086.52), judicial expenses (P8,604.39), real estate taxes (P652.50), and claims against the estate (P10,022.47). Meanwhile, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests in the estate to spouses Douglas and Bettina Fisher.

On September 7, 1953, the ancillary administrator filed a second amended return, declaring the same assets but claiming additional exemptions: a P4,000.00 deduction from the gross estate pursuant to Section 861(4) of the U.S. Federal Internal Revenue Code by way of reciprocity under Section 122 of the NIRC, and exemption from estate and inheritance taxes on the 210,000 shares of stock, also under Section 122. The estate claimed it was liable only for P525.34 in estate tax and P238.06 in inheritance tax, and requested a refund of P15,259.83 as overpayment. The Collector denied the claim, prompting the Fisher spouses, as assignees, to commence action in the CFI of Manila. Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals, which ruled that one-half of the conjugal partnership property should be deducted from the net estate, that intangible personal property was exempt from inheritance tax under Section 122 of the NIRC in relation to the California Inheritance Tax Law, that the Baguio real estate should be valued at P52,200.00 and the shares at P0.38 per share, and that the estate was entitled to deductions of P2,000.00 for funeral expenses and P8,604.39 for judicial expenses. Both parties appealed.

• Applicable Law on Property Relations: Petitioner contended that pursuant to Article 124 of the New Civil Code, the property relation of the Stevensons should be determined by the national law of the decedent husband, i.e., English law, which allegedly does not recognize legal conjugal partnership and vests all properties acquired during marriage exclusively in the husband. Petitioner also cited Article 16 of the New Civil Code (Article 10 of the old Civil Code) to argue that successional rights are determined by the national law of the decedent.
• Reciprocity Exemption: Petitioner disputed the Tax Court's exemption of the 210,000 shares from inheritance tax, arguing that the California Revenue and Taxation Code provision had not been duly proven by respondents, that reciprocity exemptions under Section 122 of the NIRC could only be availed of by residents of foreign countries and not of residents of a U.S. state, and that there was no "total" reciprocity between the Philippines and California because the Philippines exempts both estate and inheritance taxes on intangible personal property while California only exempts inheritance tax.
• Deduction of Judicial Expenses: Petitioner contended that no evidence of record existed to support the allowance of P8,604.39 for administrator's fee (P1,204.34), attorney's fee (P6,000.00), and judicial and administrative expenses (P2,052.55).
• Valuation of Real Estate: Petitioner maintained the valuation of P52,200.00 for the Baguio properties as fair market value, consistent with the Tax Court's finding.

• Conjugal Partnership Deduction: Respondents maintained that in the absence of any ante-nuptial agreement, the system of conjugal partnership was presumed to apply, and one-half of the net conjugal estate should be deducted as the surviving spouse's share pursuant to Section 89(c) of the NIRC.
• Reciprocity Exemption: Respondents argued that the estate could avail of the reciprocity proviso in Section 122 of the NIRC, in relation to Section 13851 of the California Revenue and Taxation Code, to exempt the 210,000 shares from inheritance tax. They presented the testimony of Attorney Allison Gibbs, a member of the California Bar since 1931, who quoted verbatim the pertinent California law from Derring's California Code.
• U.S. Federal Estate Tax Deduction: Respondents claimed a P4,000.00 deduction based on Section 861(4) of the U.S. Federal Internal Revenue Code, by way of reciprocity under Section 122 of the NIRC, citing the Board of Tax Appeals ruling in Housman vs. Collector.
• Valuation of Shares: Respondents contended that the 210,000 shares should be valued based on the market quotation at the San Francisco Stock Exchange, where the certificates were held and registered, and alternatively that the Manila Stock Exchange quotation of P0.325 per share six months after death should govern instead of the P0.38 declared in the preliminary return.
• Valuation of Real Estate: Respondents argued that the assessed values of the Baguio properties as appearing in the tax rolls six months after death should be considered the fair market value pursuant to Section 91 of the NIRC.
• Deduction of Indebtedness: Respondents claimed a deduction of P10,022.47 representing an indebtedness of the decedent to the Bank of California National Association, a loan of $5,000.00 secured by a pledge of 140,000 shares of stock in Mindanao Mother Lode Mines, Inc., which had been admitted and approved by the California probate court.
• Interest on Overpayment: Respondents claimed entitlement to interest on the amount allegedly overpaid to the government.

• Property Relations of Spouses: Whether, in determining the taxable net estate of the decedent, one-half of the net estate should be deducted therefrom as the share of the surviving spouse in accordance with Philippine law on conjugal partnership and in relation to Section 89(c) of the NIRC.
• Reciprocity Exemption on Intangible Personal Property: Whether the estate can avail of the reciprocity proviso in Section 122 of the NIRC granting exemption from estate and inheritance taxes on the 210,000 shares of stock in Mindanao Mother Lode Mines, Inc.
• U.S. Federal Estate Tax Deduction: Whether the estate is entitled to a P4,000.00 deduction allowed by Section 861 of the U.S. Internal Revenue Code in relation to Section 122 of the NIRC.
• Valuation of Properties: Whether the real estate properties in Baguio City and the 210,000 shares of stock were correctly appraised by the lower court.
• Deductions: Whether the estate is entitled to deductions for judicial and administration expenses (P8,604.39), funeral expenses (P2,086.52), real estate taxes (P652.50), and indebtedness (P10,022.47).
• Interest on Overpayment: Whether the estate is entitled to payment of interest on the amount it claims to have overpaid the government.

• Property Relations of Spouses: Yes. One-half of the conjugal partnership property was properly deducted from the decedent's taxable estate, the applicable English law on property relations not having been proven, triggering processual presumption that English law is the same as Philippine law.
• Reciprocity Exemption on Intangible Personal Property: No. The estate was not exempt from inheritance tax on the shares of stock, there being no total reciprocity between Philippine and California tax laws as required by Section 122 of the NIRC, because the Philippines imposes both estate and inheritance taxes while California imposes only inheritance tax, and U.S. federal law imposes estate tax on non-resident aliens without reciprocity exemption.
• U.S. Federal Estate Tax Deduction: No. The P4,000.00 amount under the U.S. Federal Estate Tax Law is in the nature of a deduction and not an exemption, regarding which reciprocity cannot be claimed under Section 122 of the NIRC.
• Valuation of Properties: Partially. The Baguio real estate was correctly valued at P52,200.00, but the shares of stock should be appraised at P0.325 per share based on the Manila Stock Exchange quotation six months after death, not P0.38 as declared in the preliminary return.
• Deductions: Partially allowed. Judicial and administration expenses of P8,604.39 and funeral expenses of P2,000.00 were allowed; real estate taxes of P652.50 were effectively included in the judicial expenses; the indebtedness of P10,022.47 was disallowed for lack of approval by the Philippine probate court and failure to include the value of the estate outside the Philippines in the returns as required by Section 89(d)(1) of the NIRC.
• Interest on Overpayment: No. In the absence of a statutory provision expressly authorizing such payment, the National Government cannot be required to pay interest.

• Property Relations of Spouses: The marriage of the Stevensons took place in the Philippines in 1909, making Article 1325 of the old Civil Code—not Article 124 of the New Civil Code—the applicable provision. Both articles adhere to the nationality theory for determining property relations in mixed marriages, but Article 1325 is limited to marriages contracted abroad, while Article 124 applies regardless of venue. Critically, both spouses were foreigners, not a mixed marriage between a Filipino and a foreigner. Following Manresa's commentary, the law determinative of the property relation of two foreigners married in the Philippines would be the law of their country. However, petitioner failed to prove the pertinent English law that allegedly vests full ownership of conjugal properties in the husband. A mere allegation in the answer was insufficient. In the absence of proof, the Court applied processual presumption—presuming that English law on the matter is the same as Philippine law, which recognizes conjugal partnership. Article 16 of the New Civil Code (Article 10, old) was inapplicable because it governs the amount of successional rights, not property relations between spouses, which are governed by the specific provisions of Title VI, Chapter I of the Civil Code. The lower court's deduction of one-half of the conjugal property was therefore sustained.
• Reciprocity Exemption on Intangible Personal Property: Section 122 of the NIRC exempts intangible personal property from death taxes if the decedent's foreign country of residence either imposes no transfer or death tax of any character on intangible personal property of Philippine citizens, or allows a similar exemption from transfer, death, legacy, or succession taxes of every character. Section 13851 of the California Inheritance Tax Law similarly requires that the foreign state either impose no death tax of any character on intangible personal property of California residents, or contain a reciprocal provision for exemption from legacy, succession, or death taxes of every character. Both provisions demand total reciprocity—exemption from taxes of every character. The Philippines imposes both estate and inheritance taxes; California imposes only inheritance tax; and the U.S. Federal Internal Revenue Code imposes estate tax on non-resident aliens without any reciprocity exemption. Consequently, a Filipino non-resident in California with intangible personal property there would still be subject to federal estate tax, meaning the Californian is not exempt from every character of death tax under Philippine law. Conversely, exempting the Californian from Philippine estate tax would not entitle a Filipino to exemption from estate tax in California because federal law, equally enforceable there, imposes it without reciprocity. The Filipino citizen is always at a disadvantage, a result the legislature could not have intended. The Court distinguished Collector of Internal Revenue vs. Lara, where the reciprocity issue between Philippine and California law was not squarely raised. The Court expressly declared that partial reciprocity is insufficient—it must be total or none at all.
• U.S. Federal Estate Tax Deduction: The Court adhered to its ruling in Collector of Internal Revenue vs. Lara that the $2,000.00 allowed under the Federal Estate Tax Law is in the nature of a deduction, not an exemption, regarding which reciprocity cannot be claimed under Section 122 of the NIRC. Nor is reciprocity authorized under the Federal Law.
• Valuation of Properties: On the Baguio real estate, Section 91 of the NIRC requires appraisal at fair market value, with assessed value treated as fair market value only when no evidence to the contrary exists. The Tax Court found evidence justifying the P52,200.00 valuation: the properties, containing 36,264 square meters, were sold for P72,000.00 one year after death, and respondents' counsel admitted willingness to purchase at P2.00 per square meter. Assessed values for real estate taxation are commonly lower than true market value. On the shares of stock, the situs for taxation purposes is the Philippines, as respondents conceded, because Mindanao Mother Lode Mines, Inc. is a domestic corporation. Fair market value must therefore be determined based on the Philippine market, not the San Francisco Stock Exchange. Respondents showed through Attorney Gibbs that a share was bid at only P0.325 at the Manila Stock Exchange six months after death, a figure never refuted by petitioner. The preliminary return's declaration of P0.38 per share could not control because the ancillary administrator had expressly reserved and availed of his legal right to have the properties declared at their fair market value as of six months after death.
• Deductions: The P8,604.39 for judicial and administration expenses was properly allowed because the Tax Court relied on the probate court's approval of these items, supported by the pertinent probate court order submitted in evidence. The P2,000.00 for funeral expenses was expressly allowed and should be deducted, an omission in the Tax Court's final computation being an evident oversight. The P652.50 for real estate taxes was effectively included within the P8,604.39, as the Tax Court had added it to the judicial and administration expenses. The P10,022.47 indebtedness was disallowed for two reasons. First, approval by the Philippine probate court was necessary; approval by the California probate court was insufficient because ancillary administration in the Philippines is separate and independent from domiciliary administration abroad, and claims must be presented and approved before the local court before deductions can be authorized. Second, Section 89(d)(1) of the NIRC prohibits deductions for a non-resident unless the return includes the value of the gross estate not situated in the Philippines. No such statement appeared in any of the three returns submitted. The purpose is to enable the revenue officer to determine the proportion of indebtedness allowable under Section 89(b)(1), which limits deductions to the proportion that the Philippine estate bears to the entire estate wherever situated. Without a statement of the estate outside the Philippines, no part of the indebtedness could be allowed.
• Interest on Overpayment: Following Collector of Internal Revenue vs. St. Paul's Hospital, in the absence of a statutory provision clearly or expressly directing or authorizing such payment, the National Government cannot be required to pay interest.

• Processual Presumption — In the absence of proof of foreign law, Philippine courts may presume that the law of the foreign country is the same as Philippine law. Applied here because petitioner alleged but failed to prove English law on conjugal partnership property relations; the Court presumed English law to be the same as Philippine law, which recognizes conjugal partnership of gains.
• Total Reciprocity in Death Tax Exemption — The reciprocity exemption under Section 122 of the NIRC requires that the foreign country's laws allow a similar exemption from transfer, death, legacy, or succession taxes of every character. Partial reciprocity is insufficient; it must be total or none at all. Applied to hold that no exemption was available because the Philippines imposes both estate and inheritance taxes, California imposes only inheritance tax, and U.S. federal law imposes estate tax on non-resident aliens without reciprocity, so that a Filipino with intangibles in California would not be exempt from every character of death tax.
• Situs of Shares of Stock for Taxation — For purposes of taxation, the situs of shares of stock in a domestic corporation is the Philippines, and their fair market value must be determined on the basis of the price prevailing in the Philippine market, not a foreign stock exchange.
• Independence of Ancillary Administration — Ancillary administration in the Philippines is separate and independent from domiciliary administration in a foreign country. Claims against the estate must be presented to and approved by the Philippine probate court before they may be allowed as deductions; approval by a foreign probate court alone is insufficient.

• "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." — This passage articulates the doctrine of processual presumption as applied to the unproven English law on conjugal partnership, justifying the deduction of one-half of the conjugal property from the taxable estate.
• "there could not be partial reciprocity. It would have to be total or none at all." — This is the canonical formulation of the total-reciprocity requirement under Section 122 of the NIRC, distinguishing the case from Collector of Internal Revenue vs. Lara and establishing that exemption from death taxes on intangible personal property demands reciprocity as to taxes of every character.
• "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." — This defines the rule that shares of stock in a domestic corporation are taxed at their Philippine market value, not the value at a foreign stock exchange where the certificates may be held.

• Willamette Iron and Steel Works vs. Muzzal, 61 Phil. 471 — Followed. Established that foreign laws may be proved by means other than those prescribed in Section 41, Rule 123 of the Rules of Court, including the testimony of an attorney-at-law who quotes verbatim a section of foreign law and states that it was in force. Applied to uphold the Tax Court's acceptance of Attorney Gibbs's testimony as sufficient proof of Section 13851 of the California Revenue and Taxation Code.
• Collector of Internal Revenue vs. Lara, G.R. Nos. L-9456 & L-9481 — Distinguished on the reciprocity issue because the question of total reciprocity between Philippine and California tax laws was not squarely raised there. Followed on the P4,000.00 U.S. federal deduction issue, holding that the amount is a deduction, not an exemption, for which reciprocity cannot be claimed under Section 122 of the NIRC.
• Collector of Internal Revenue vs. St. Paul's Hospital, G.R. No. L-12127 — Followed. Held that the National Government cannot be required to pay interest on tax refunds in the absence of a statutory provision expressly authorizing such payment.
• In the matter of the testate estate of Basil Gordon Butler, G.R. No. L-3677 — Cited for the principle that domiciliary and ancillary administrations are separate and independent proceedings, supporting the requirement that claims against the estate must be approved by the Philippine probate court.

• Section 122, National Internal Revenue Code — Reciprocity exemption from transfer/death taxes on intangible personal property of non-resident decedents. Applied to determine whether the estate qualified for exemption; held that total reciprocity was required and not present because the Philippines imposes both estate and inheritance taxes while California imposes only inheritance tax and U.S. federal law imposes estate tax without reciprocity.
• Section 89(c), NIRC — Deduction of surviving spouse's share from net estate. Applied to allow deduction of one-half of the conjugal partnership property.
• Section 89(b)(1), NIRC — Proportional deductions for non-resident estates, limiting deductions to the proportion that the Philippine estate bears to the entire estate wherever situated. Applied to disallow the indebtedness deduction because the estate failed to include the value of properties outside the Philippines in its returns.
• Section 89(d)(1), NIRC — Requirement that non-resident estates include the value of the gross estate not situated in the Philippines in the return as a condition for any deduction. Applied to disallow the P10,022.47 indebtedness deduction because no such statement appeared in any of the three returns filed.
• Section 91, NIRC — Appraisal of estate properties at fair market value, with assessed value as fair market value only absent evidence to the contrary. Applied to uphold the P52,200.00 valuation of Baguio real estate and to require share valuation as of six months after death.
• Article 1325, old Civil Code — Property relations of spouses married abroad. Distinguished: applicable to marriages contracted in a foreign land, not to the Stevensons who married in the Philippines in 1909.
• Article 124, New Civil Code — Property relations in mixed marriages between a Filipino and a foreigner. Held not applicable because the New Civil Code took effect only in 1950, after the Stevensons' 1909 marriage.
• Article 16, New Civil Code (Article 10, old Civil Code) — National law determines the amount of successional rights. Held not to govern property relations between spouses, which are governed by separate and specific provisions of the Civil Code.
• Section 13851, California Revenue and Taxation Code — California reciprocity exemption on intangible personal property of non-residents. Applied to compare with Philippine reciprocity provisions; held insufficient to establish total reciprocity.
• Section 861(4), U.S. Federal Internal Revenue Code — $2,000.00 deduction from gross estate. Held to be a deduction, not an exemption, for which reciprocity cannot be claimed under Section 122 of the NIRC.
• Rule 123, Section 41, Rules of Court — Prescribes the manner of proving foreign laws. Applied flexibly, following Willamette, to accept the testimony of a California attorney as competent evidence of California law.

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