Court of Tax Appeals
0DONALD PY vs. Nonald Dy, et al.
REPURLIC OF THE PHILIPPINES
COURT OF TAX APPRALS '
QUEZON CITY
DONALD PY, in his capacity
as “xecutor of the Testate
“state of Deceased Dy Pac,
Petitioner,
- Versus = | CoTeke CASE Kos 1929
COYMISS IONSR OF INTSREAL
REVERT, %
. ‘Res pondente \ 4
xe w= 3-7 = = ewe ee ewe mee me OE \T\ .
(7
Petitioner Nonald Dy, in his capacity as executor
of the testate estate of Dy Pac, appeale? from the de-
cision of respomient Commissioner of Internal Revenue
hola@ing the 4ecedent's estate liable for deficiency
estate an? inheritance taxes amounting to #352,5%2.33
ant #263,5169.W, respectively, inclusive of 50% sur-
charge ané deficiency interes ts.
Dy Pac, a chinese citizen resifing at Juan Luna,
Tomio, Manila, 4ie4 testate on February 9, 1963. Mie -
will was submitted to probate in Special Proceedings
No. 54698 of the Court of First Instance of Manila.
(Braneh IV) in August, 1963. The probate court ap-
pointed Donald fy, son of the deceased, as axecutor and
administrator of the decedent's estats.
| On March 4, 1964, petitioner (ilea, through his ac-
countant, Carlos J, Valdez & Co., the corresponding
transfer tex return ani pai’? estate and inheritance taxes
amounting to P50,676.99 and P26,995+36, respectively.
247
pecIs ION -
CTA CAS™ No. 1929
2
Upon investigation contucted by Revenue Examiner
Benjamin San Diego, he recommented that def ieiency
estate and inheritance taxes of 723,101.26 and
£19,233-76 be assessed against tha decedent's estate.
The same were pait by petitioner on January 8, 1965
ané February 5, 19465, respectively.
Oh February 2+, 1965, after payment of the atat-
tional transfer taxes dus, petitioner's accountant,
Carlos J. Valdez & Cos, requeste? respondent under
See. 97 of the Revenue Code that petitions: be dis-
charged from personal liability for any def ielieney
transfer taxes that might thereafter be found dus fren
the decedent's estate. On March 1%, 1965, sai* request
was grante4 by then Deputy Commissioner ef Internal
Revenue Miseel P. Vera. | |
‘In May, 1966, another investigation was conducted
by avenue Txaniners Jose Menfosa, Dominador Pecayo and
Amado Soriano. After the reinvestigation, they report-
ef and recommended to responfent that a reVised transfer
tax assessment be issue? based on the finiings that:
(1) the appraisal made by the previous examiner of the
fair market values of the real property of the late hy
Pac was very low; (2) certain “receivables” ‘ue
the deceased wore omitte’ from the returns (3) unsup-
porte? judicial expenses were allowe? as deduction from
the ‘ecedent’s gross oState; an? (+) certain claims
248
MecIs ION <
CTA CAST Noe 1929
3
against the ‘4ecedent's estate were not substantiated
by evidence.
On April 6, 1967, respontent demanted fron peti-
tioner, executor of Dy Pac's astate, payment of
351,542.33 and P262,169.90 representing deficiency
estate ant inheritance taxes, compute’ as follows:
"s tate tax a eeoeeoeseeceseoetenaneze P27 9512901.
Less amount already pal? ..ccses
neficiency estate tax sessesesse 2055575
s. weharge for p math be ee
Peturn cesccossvscesesecevsesse 102,790.45
2% peat oe interest or
7h Oe from 2/9/64 to r
esa nevneeaeee oe eeoepecaeaeeen —tdah7h2 99
eh “STare® TAX &
PTNALTI™ WE Reeaeneovoneeeaenase B32 52.33,
Inheritance tax BeOeeassorccesen F203,491. 60
Less amount already paid cececses
Nefieleney inheritance tax eceee F. g2>ce*
surcharge for fraudulent
Paturn cccevevccovescssesesss 77563. 2
4% tetas | interest on
eset fron 2/9/6 to
5/9/ - SCHR CEHER HE SOR HSER REE 30027618
oSFIC THCY INE@RITANC® TAX
& PENALIINS PUR secsccceseeve E262.}590 90
Upon receipt of the ‘enand letter on April 26,
1947, petitioner’s brother and Attorney-in-Fact, Yr.
Melfin Dy, requested the reconsideration ané cancella-
tion of the naw assessment. . ;
On January 3, 19°S, without answering the said re-
quast filed on behalf of petitioner who was than abroade
a warrant of istraint an4 Levy was issue? by res pond~
ant to collect the said ‘teficiency transfer taxes an?
» = 249
PECTS ION =
CTA CASR No. 1929
%
the sane was serve? upon petitioner, mm two (2)
letters dated January 10, 1965 (received by res pontent
_ on January 11, 1968) ant February 3, 1955, petitioner
requested that the respontent's warrant be lifted and
cancelled. ‘lespontent, however, failed to answer said
On April 10, 1968, respontent filed a Proof of
Claim with the Court of First Instance of Manila in
Special Proceedings No. 5698 seeking the collection of
the aforesaid taxes. espontent*s pleading war re-
ceived by petitioner on April 30, 1968, and the latter
filed the present appeal on May 15, 1968,
The two issues submitte? to the Court for resolution
are the followings
(1) Whether or not this Court has
, jurisdiction to entertain the present ap-
peals and
(2) Whether or not the dis éef i-
ciency assessment for estate inheritance
taxes is Yalit an? justified umier the facts
Ehret lee uas
/ Respomient contends that this Court is without
jurisdiction to entertain the appeal because the same
was filed beyond the thirty~day perio’ preseribed in
“Section LL, Republic Act No. 1125.” Me contents that re-
sponjent*s final and appealable decision was the war-
rant of 7istraint an? levy which was received by peti-
tioner on January 3, 1968, rom the said date to the
250
DECISION «
CTA CaS® No. 1929
;
filing of petitioner's appeal on May 18, 1968, nore
than thirty (30) days hod alreaty elapsed. < ,
Petitioner, however, denias that respondent 's
final ami appealable decision is the warrant of Jis-
traint and levy. He conten’ts that the Proof of Clain
filed by respomient in the testamentary proceed ings
of the decedent's estate, which was received by peti-
tioner on April 30, 1965, entitle? him to appeal to
the Tax Court until May 30, 1965. Since only eighteen
(18) days hat elapsed from receipt of the Proof of
Claim, petitioner claims that his appeal was seasen=-
ably filed with the Tax Court.
We fin# petitioner's stand maritorious. ‘The
issuance ani service of the warrant of distraint an‘
levy against tho decedent's estate cannot be cons idered
as raspontent's decision on the disputed assessment.
Respontent knew, as he ought to know, fron the dacetent's
estate an? inheritance tax return that tes tanentary
proceedings were instituted in court for the settlement
of the estate of the late Dy Pac. Consequently, as the
‘property or sstate of the late Dy Pac were in custotla
legis, the issuance of respondent's warrant was made
merely to establish a lien for the collection of taxes.
We are, therefore, in the persuasion that when raespond-
ent subsccueantly filed a pleading in the probate court
praying for satisfaction of the transfer taxes and
201
DSCISION =
CTA CAS™ No. 1929
é
Panalties due from the transmissisa of the decedent's
estate, thy action taken by respontent constitutes his
final decision on a “isputed assessment. |
Assuming arguendo that the warrant of ‘istraint
ant levy was responient’s final an? appealable decision,
wo still Cin* thet petitioner's appa] was filed en
time because “cht (8) days after service of the said
varrent, petitioner filed a request for its cancella-
tion. The sai4 request suspended the running of the
preseriptive period for appeal. When petitioner re-
erived the Proof of Claim on April 30, 1968, the action
taken by responient is an implic? denial of petition-
er’s request for reconsideration. Therefore, the pre-
ecriptive period of appeal begen to rum again. On May |
16, 1943, when the present appeal was filed, a total
of only 26 Gays have been availed of by petitioner in
perfecting his appeal, computed as follows:
Fron date of service
Sour Pry sl. Frage tote ol 9B
ge 11, 1968, date of receipt
by respontent "or petitioner's re-
quest for cancellation thereof .... 8 Aays
From See date of re-
@aipt petitioner of responé-
ent 4s prest of claim to
dato of filing of
presart EPPOAlL eovcsvesservsensecs a ee
Total eescscesssenvensecers 2 dave
Accordingly, this Court has jurisdiction to enter-
tain petitioner's appeal.
292
DECISION -
CTA CAST Noe 1929
Seconi Issue:
We will now discuss the controversial items in the order of their prefarence, to wits decatent's real property, The two (2) parcels of Lan’ of the late Dy Pac at Juan Luna Ste, Tomio, Manila, ha? an assessed value ef PB45,440.00 at the time ef his death on February 2) 1963. In the transfer tax return filed with the BIR, the fair market Value thereof was declared at #1,293,140.00 (ixh.s Dy Pe 123, CTA rec. ), Revenue Sxaminer Benjamin San Piewo, however, reported that the fair market Value of the same property amounted to P2,019,035.55, compute’ ac follows:
Land Ba ge by TCT No.
3106+) with an area of SQe Mey at .
per SGe Me coerce sceelhs O00, 55%, 30° Land (covered by TCT No. | 39716) with an area of 8Ge me at ; per Sde Me o0cccece 33553490 25 TOTAL seveesccvcceseesse 2.019.035, 55 (See ppe 1, 3% & 3%, BIN ree.)
The new set of revenue examiners increased the Valuation of the same property to P39l't2,912.00, com puted as follows:
tse EM C Sce we at per Sde: Me owcececeeP2g7625 2725 Foorrect figure - P25762s772200 293 "eCIS IOK =
CTA CAST Noe 1929
8 Land anunée by TCT Ko.
39714) with an area of
Bqe Be at -
POP Bqe Reese oseek 380,640.00 Phd 2h 2200
TOTAL [Rae SERRE RERSAERE RES SE +
(See pre 5, 42, & ¥6, BIR vec, ) After sifting and evaluating the documentary evi- dence presented in Court, we (ind that, except the cor- rect fair market Value of #300.00 per sq» m of the lané coVered by TCT Fo. 39716, the areas and valuation of the two parcels of lan’ ——— by the de- ceased are as follows:
Deapiani-s. i Unit Price a Se.
TCT £3108% 19,074.26 8 74 71552559 é 200 TOTAL TEAR REE RER SESS EE 7 bi Transfer Certificate of Title No. 31084 issued in | the name of the late Dy Pae ana involving a number of lets contained a total area of 19,07% 20 eq. m instead Of 23,023.10 sa. Ms as reported by the two sets of revenue examiners. (See txhs. &, R-l to R<14, inclusive, pp. 146-147, CTA rec.) ‘The area of 19,07% 20 sce m is corroborated by the appraisal report of a real estate appraiser. (See txhs. S & 5-3, ppe 149-150, CTA rec. )
On the other han’, the increased area of 1,561.1% sq.
m. of land, instead of only 1,265.50 sq. m as reported by the investigating reVenue examiners, is evidenced by Transfer Certificate of Title No. 39716 marke? as
DECISION =
CTA CASK Noe 1929
9 ‘Sxhibit T (pe 159 CTA rac. )e The fair market Valao of P90.00 per square neter of the land covered by ect Noe 31084 is substantiated by the Appraisal Report and the uncontradicted tasti- mony of “r, Mariano Racpan, a professional real as tate appraiser ant vico~presitent of the Appraisal Service Company, Inc. (Sxh. Sy guora.) Im fact, the correct- ness of Nr. Racpan*’s Valuation has been admitted in responfent's memorandun quoted hereunder:
In the course of the trial on the merits of this case, it was established by no less than petitioner's own witness, Nr, Fariano T. Racpan who has distin- guished himself as an oxpert witness in the fiel4 of appraisals of real prep=- arties that the fair market value per square meter of the ort ee of land covered by TCT tos. 31084 and 39716 all of which are situated at Juan Luna, Ton=- ao, Manila, and belonging te the estate of the late fy Pac were #50,00 and P300.00, respectively. Whereas, in the original report of investigation, the appraisal sade of the said real prop- erties by the investigating revenue examiner was only #73.00 and #266.466 per Square meter, respectively. Obviouwly, _ therefore, there was an unfarvaluation in the a ateel OF He Feel ory rties Covered by TCT Nos. 3108% ant 39716 as 4iscovere4 an4 determined by the reine vestigating revonue examiners, or a dif- ference of &7.00 ana #33-3* per square meter, respectively. ee pp. S~ nal S memorandums pp. 277-278, A rec.
This Court adopts the fair market value of P30,00 per square meter of the Tondo lot referred te as ap- praised by “re Racpan because “where there is no valid 299
DECISION <
CTA CASS Noe 1929
- 10 reason for disregarding the opinion of experts, weight must be given to their testimony where there is no contradictory evidence." (Cullers vs. Comm, 237 P(28) 729 ) The valuation of #300,00 per square meter of the decedent's land covered by TCT No. 39716 is not dis- puted. In fact, petitioner's expert witness, Mr. Maria- . no Te acpan, tended to support the sai? valuation. (See pp. 80-81, tes.n.) We find, therefore, that the Tonio real property cf the late ny Pac has a total fair market value of P1,99%,20%.00, gupra, instead of P3,1%2,912.00 as reported by the re-inves tigating revenue examiners.
The original revenue examiner, Mre Benjamin San Diego, reported that the fair market Value of the late Dy Pac's personal property amounted to ®735,209.02, including ®23,050.12 due and collectible from Dy Pae & Cos, Ince (See ppe ly 5p 3% & 36, BIR vec.) ‘The re- investigating revenue examiners, however, reported that the receivables due from Dy Pac & Cosy Ince, was £437,076076 instead of P28,050.125 ant thet long torm and eurrent instellment receivables amountins to #6%,638.00 and P12,927.60, respectively, were not in- | Gluted in the decedent's gross estate for transfer tax 256
DRCISIOR -
CTA CASE No. 1929 purposes.
The said receivables of #%37,076.75 were re- flected in the balance : be. ¢ as of Decerb: 3s 196) which was attache? to his individual income tax return for the same year. The late Dy Pac, how- ever, die4 on February 95.1963. but the subsequent investigating revenue examiners considered the said amount as part of the gross estate of the decedent at | the time of his death. This conclusion of the three
(3) examiners is a mere speculation bereft of any factual support. It disregerde’ the findings of . ReVenue “xaniner Benjamin San “iego whe reported that the balance of the sai¢ "receivables" as of February 9» 1963 was only 20,050.12. This amount represents the balance of the account receivable by the deceased from Dy Pac & Cos, Inc., after the said corporation ‘has made several payments amount ins to P409,02%. 64 auring Py Pac's Lifetime based on the undisputed evi- dence presented during the trial ef this case.
The reinvestigating revenue examiners likewise | considere’ the long term and current installment receivables of ¥64,635.00 and ¥12,927.60, respective- ly, or a total of #77,565.60, as part of the decedent's gross estate as of February 9, 1963 based on another balance sheet of the Jate Dy Pac ag of Macember 51, 14262. Again, we have to disregard the conclusion ef the 297
DECISION «
CTA CASE Noe 1929
12 reinvestigating examiners and sustain the findings of Revenue Examiner Benjamin Sen Diego who originally ine Vestigated this case, The said receivables of #775565. 60 were pai? to Dy Pac before his death as evidenced by paid cash vouchers am official receipts submittec to this Court. (See "xhs. ZXy X-1 to X-+2 and Z, 2-1 to Z-4, pe 175-2235 CTA rece ) dudicial expenses of 7200,000, 00, The juticial expenses of €100,000.00 were allowed as deduction from the decedent's gross estate by the . original reVenue examiner but the same were 4isallowed _ by the reinvestigating examiners for lack of recor? or evidence to substantiate the same. — Again, the evidence afduce? et the trial show that judicial proceeding was filed in the Court of First In~ stance of Manila for the probate of the wil] an* set- tlement of the estate of the decease’. The executor of the decedent's estate, therefore, incurred expenses for the professional services of accountants an’ lave yers in the settlement of the decedent's estate, item- ized as follows:
Sebastian C Sanfoval (Certi- |
fied Public Accountant) ..seeeP 20,000.00 ey ~~) po 30,000.00
Semaco Ps Sacmar (CPA-
*gasegvesossuacncocees eeaeaeeseeeeneese (See iy 189-195 te®eNes and ag od Phat poe bah, 2 5 OPh ved.)
298
DECISION ~
CTA CASS Roe 1929
B
Consequently, the judicial expenses of 7100,000.00 are deductible from the decedent's gross estate under Sec. 89(a)(1)(B) of the Revenue Code. Chains of #1510) si2/4'th 7 ~ "nce The deduction of P1,101,327.43 from the decedent's gross estate was also rejected by the subsequent in- Vestigating examiners because Dy Pac's balance sheet as of December 3s 1962 214 not reflect sai’ Liabili-~ ties, The said oxaminers, therefore, concluded that from “anuary 1 to February 9, 1943, the Late Dy Pae Coul? not have imeurred liabilities of #1,101,327. 43 im such 4 short period of tine.
We agree With the subsequent investigating examiners that the said bank liabilities must be re- flected in the 1962 balance shoet of the late Dy Pac. But such omission alone is not sufficient to warrant - a denial of the deduetion from the decedent's gross estate (assets) of the staggering amount of P1102 ,327.43. In the first placa, the s ubsequent investigating examiners could have easily conferred with evenue txaminer Benjamin San ‘Diego to find out why it shoul4 not. be allowed as a deduction from the decedent's gross estate. Secomily, the said bank ‘in- debtedness might not have been revealed by the late fy Pac to his accountant. An‘ lastly, a taxpayer's aA 299
7C
ION -
CT
C
o. 1929 14 liability hich o s o t appear in his balance she t ./ has no material b a ing on his income tax 11 bility. bov all th conclusion an sp cul.ation of the r - inv~stioatin xaminers , it has b en st blish by th pr~pon ranc of Vid nee at th~ trial of this cas that th lat y Pac was in bt in th total amount of P-1 ,101,327. 43 to th~ China Banking Corpora- tion, Philippin Bank of Co unications and Philippin ational Bank in th~ amounts of ¥555,169.49, P200,454. 48 and 11345,703. 46, resp ctiv ly, at th t e of his ath on bruary 9, 19 3.
{S e pp. 1 , 5 & 35, Bm r c. )
50% Surchar§ •
h 50~ surcharg as fra p n lty impos d by S ction 102 of th National Internal Revenue Co e is not applicabl . to this cas becaus "'PO nt 's xaminers !'ailo to s tablish by Vid nee that the ec nt •s cuto an . adminis trator has fra . ed the 'ov rnment of its la~>~ful r. v n • On th contrary, r spon nt 's thr e (3) aminers app ar to be car 1 ss and haphazar in th 1 inv s tigation of the d c ent 's .. stat • oains t th fi ings of t r ven xamine s, this Court oun in th r co an in t~ Vi ence sub- • mitt~ by petitioner a lo r net taxable estate of th .
.
lat y Pac follows:
~nting to only 722t389. 80 co pute as 260 DECISION = bh CTA CASE No. 1929 .
15 Real property OCCHHE ROKER OR ESODED® #129 20'%~00 Personal property Beeeeeereasenoezeves Gross “tate cevsccsesscecessecvene Fey ' . Less: "educt ions le Funeral expenses P 93,356.00
2. Juticial ay 100,000. 00 3e Claims against es tate mS Net eptate ecescscsccvececvecsesscos F] Less 50% thereof as share of vife .. _. Net estate subject to tax In the final analys is, the transfer taxes legally due an? collectible from the transmission of the dece- dent's estate appear to be lowr than the total estate an? inhoritanes taxes of 121,778.64 pai? by the executor of the decedent's estate.
WETTTFORN, the decision of respontent Commissioner of Internal ReVenue appealed from is reVersed ani the de- ficiency estate an? inheritance taxes of #351,5%2.33 ana 263,169.90, inclusive of penalties, assessed against amd demanded from tha decedent*s executor an’ adminis<- trator are hereby cancelled and 4eclared of no force ant effect, Without pronouncenent as to costs.
$0 ORDERED.
Quezon City, December 12, 1973.
Ate Sy
Associate Judge
“s CONCUR:
a da Presiding Jwige .