Tuason y Angeles vs. Posadas, Jr.

Donations inter vivos made by a predecessor to persons who, after the predecessor's death, prove to be heirs, devisees, legatees, or donees mortis causa must be added to the net amount subject to inheritance tax under Section 1540 of the Administrative Code, as the law presumes such gifts were made in anticipation of inheritance to evade the tax.

The plaintiffs, Alfonso Tuason y Angeles and Mariano Tuason y Angeles, were donees of donations inter vivos from Esperanza Tuason y Chuajap, who later died leaving a will in which the plaintiffs were named legatees. The defendant was the Collector of Internal Revenue who collected inheritance taxes on the donations. The case involves the interpretation of Sections 1536, 1539, and 1540 of the Administrative Code concerning the imposition of inheritance tax on gifts and advances made by a predecessor to those who later prove to be heirs, devisees, legatees, or donees mortis causa.

On September 15, 1922, Esperanza Tuason y Chuajap made a donation inter vivos of certain property to plaintiff Mariano Tuason y Angeles. On April 30, 1923, she made another donation inter vivos to Alfonso Tuason y Angeles, the other plaintiff. On January 5, 1926, she died of senile weakness at the age of 73, leaving a will bequeathing P5,025 to Mariano Tuason y Angeles. Her judicial administratrix paid the prescribed inheritance tax on these two bequests.

The defendant collected the sums of P3,809.76 and P6,653.64 from plaintiffs Mariano Tuason y Angeles and Alfonso Tuason y Angeles against their opposition and over their protest as inheritance tax upon the gifts inter vivos made to them. The plaintiffs brought this action against the Collector of Internal Revenue for the recovery of the amounts collected from them as inheritance tax.

The judgment appealed from ordered the defendant to return the amounts claimed to the plaintiffs. The appellant contended that the collection of these amounts as inheritance tax is authorized by the law. The appellees, after the death of Esperanza Tuason y Chuajap, were found to be legatees under her will, and the donations inter vivos she had made to them in 1922 and 1923 must be added to the net amount that is to be taxed.

• Authority for Collection: The appellant contended that the collection of these amounts as inheritance tax is authorized by the law, specifically Section 1536 of the Administrative Code, which provides that every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest shall be subject to the tax.

• Recovery of Taxes Paid: The plaintiffs brought this action against the Collector of Internal Revenue for the recovery of the amounts of P3,809.76 and P6,653.64 collected from them as inheritance tax, arguing that the donations inter vivos should not be subject to inheritance tax.

• Interpretation of Section 1540: Whether the phrase "all gifts" in Section 1540 of the Administrative Code refers to gifts inter vivos that must be added to the taxable amount when the donee later proves to be an heir, devisee, legatee, or donee mortis causa of the donor.
• Constitutionality of the Interpretation: Whether the interpretation of Section 1540 that includes gifts inter vivos in the taxable amount violates the uniformity of taxation requirement.

• Interpretation of Section 1540: Yes. When the law says "all gifts," it 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. The donations inter vivos made to the appellees, who were later found to be legatees under the will, must be added to the net amount that is to be taxed.
• Constitutionality of the Interpretation: The question of constitutionality was not raised by the parties in the court below nor in this court, so it could not be considered. At any rate, the argument against its constitutionality based on lack of uniformity does not seem to be well-founded, as the two cases are different and the principle of uniformity is inapplicable.

• Interpretation of Section 1540: The Court reasoned that Section 1540 of the Administrative Code provides that after the 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, devisees, legatees, or donees mortis causa. When the law says "all gifts," it 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. The language 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 the provision into adding all gifts mortis causa, which would vitiate the language of the law. 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.
• Constitutionality of the Interpretation: The Court noted that the question of constitutionality was not raised by the parties in the court below nor in this court, so it could not be considered. At any rate, the argument adduced against its constitutionality, which is the lack of uniformity, does not seem to be well-founded. It was said that under such an interpretation, while a donee inter vivos who, after the predecessor's death, proves to be an heir, a legatee, or a donee mortis causa would have to pay the tax, another donee inter vivos who did not prove to be an heir, a legatee, or a donee mortis causa of the predecessor would be exempt from such a tax. But as these are two different cases, the principle of uniformity is inapplicable to them. The Court cited Bromley vs. McCaughn (1929), U.S. Supreme Court Advance Opinions, p. 69, in support of this view.

• Interpretation of Tax Statutes — "All Gifts" Includes Gifts Inter Vivos — Section 1540 of the Administrative Code, which provides for the addition of "all gifts or advances" to the taxable amount, refers to gifts inter vivos and not mortis causa. 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. The Court applied this doctrine to hold that the donations inter vivos made to the appellees, who were later found to be legatees under the will, must be added to the net amount subject to inheritance tax.

• "When the law say 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." — This passage articulates the Court's interpretation of Section 1540 of the Administrative Code, holding that "all gifts" includes donations inter vivos, which is the ratio decidendi of the case.
• "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." — This passage explains the legislative intent behind Section 1540, which is to prevent tax evasion through donations inter vivos made in anticipation of inheritance.

• Bromley vs. McCaughn (1929), U.S. Supreme Court Advance Opinions, p. 69 — Cited in support of the Court's view that there is nothing against the constitutionality of the law in regard to other aspects.

• Section 1536, Administrative Code — Provides the conditions and rate of taxation for every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest. The Court applied this provision in determining the tax liability on the donations inter vivos.
• Section 1539, Administrative Code — Enumerates the deductions to be made in determining the net sum which must bear the tax. The Court referenced this provision in the context of the computation of the taxable amount.
• Section 1540, Administrative Code — Provides for the addition of gifts and advances to the resulting amount after deductions. The Court interpreted this provision to include gifts inter vivos made to persons who later prove to be heirs, devisees, legatees, or donees mortis causa.

Malcolm, Villamor, Ostrand, Johns, and Romualdez, JJ., concurred.

• Justice Street — Dissented on the ground that the taxes were imposed and collected in violation of the uniformity of taxation requirement under section 3 of the Autonomy Act (Jones Law). Justice Street argued that the plaintiffs were not persons who would have inherited any part of the estate if the donor had died intestate, and therefore the donations were not made "in anticipation of inheritance" and should not be taxable in that character. The dissent distinguished this case from Zapanta vs. Posadas (52 Phil., 557), where the donees were persons who would have been heirs of the donor if the latter had died intestate. Justice Street concluded that the judgment should have been affirmed. Johnson and Villa-Real, JJ., concurred with the dissent.