MANUEL A, et al. vs. = GoTeAe CASE NO, et al.

ft mucrUBLiIC OF THE PHILIP

COURT OF TAX APPEALS

- MANILA

MANUEL A, JAVELLANA, Petitioner, = versus = GoTeAe CASE NO, 425 g — COLLECTOR CF INTERNAL Kepleite, 21/057 REVENUE, s Respondent.

xX eeweevweeaeeensaeenee X

DEGIS ION

This is an appeal from a decision of the respon- dent, assessing ageinst and demanding from the peti- tioner the aggregate amount of #7,006.95, as deficiency estate and inheritance taxes, including surcharge and interest, allegedly due a the estates of the latter's deceased parents.

The petitioner's mother, Pilar A, de Javellana, and father, Angel Javellana, died on May 7, 1941 and February 22, 1945, respectively, leaving estates sub- jest to estate and inheritance taxes. The petitioner, as sole heir, filed estate and inheritance returns for the respective estates on November’4, 1941 and January 2, 1946 (Exhibits A and B, pp. 1 & 17, BIR rec.), and 8 supplemental return (Exhibit J, p. 33, CTA ree.) for his father's estate was filed on February, 1946. On the basis of the first two returns, the respondent, on January 2, 1946, assessed the sums of #13,102,00 and 217,554.67 as estate and inheritence taxes, including the Gompromise penalty for lack of notice of death of Pilar A. Javellana (Exhibits D and 5, p. 2%, BIR rec.).

248 26° Co TeA. CASE NO, 4296 “2.

These sums were paid by the petitioner on February 2, 1946, as evidenced by Official Receipts Nos, 10432, 10433, 2252 and 2953 (Exhibits Ce3, C-?, Cel and G, PP. 29632, BIR rec.)

Upon Investicgetion, ft was ascertained that the haciendas ef the petitioner’s parents hed a sugar quota of 11,556.22 piculs, Conseqenttly, on July 17, 1946, the respendent etsessed against and demanded from the petitioner the sums cf ?7,654.64 and 14,703.09, as dew ficiency estate anc inheritance taxes, including ine terest and compromise penalty for lack of notice of death, (Exhibits E and 9, pp. 46647, BIR ree.) This defigieney essessment included the tax on the sugar quote of 11,958.72] piculs, which was valued at °5.00 per pieul,.

Qn April 6, 1949, the petit£oner wrote to the respondent, acknowledging receipt of the latter's letter of March 19, 1949 and requesting copy of the assesement dated July 17, 1946 in order to give reasons why he was net lieble to pay deficiency taxes (Exhibit 12, pe Gl, BIA £e¢.). In response thereto, the respondent, on July 7, 1949, enclosed a copy of said assessment and, at the same time, asked for satisfactory explanations justifying the discontinuance ©< the demand for defi« Giensy taxes, (Exhibit 13, ps. 63, Sis rece) On August 10, 1949, the petitioner requestes ior iccessary ce- tails as te the nature of the deficiency taxes sought to be collected from him and the items upen which the 249

DECISIQN «

GoToAe CASE NO, 425 | - 3 - same were besed (Exhibft 14, p. 64, BIR rec.).

On September 9, 1949, the respondent demanded from the petitioner the payment of the respective sums of #®10,810,95 and *6,660,86 as deficiency estate and inheritance taxes, including 5% surcharge, ine terest and onus penalty for late payment (Exe hibit 15, pp. 69-71, O7R rec.). At the sane tines, he requested the petitioner to submit explanation which would justify the countermanding of this assesse ment. On Cetober 19, 1949, the petitioner wrote te the respondent, giving the explanetion asked for (Bx- hibit 17, pp. 73-76, 21K rec.).

Later, on December &, 1951, the respendent issued a warrant of distraint and levy against the properties of the petitioner to satisfy the amount of #18,538.06, representing estate and Inheritance taxes allegedly due on the estates of his deceased pazents (see Exhibit 19, p. 121, DIR rec.; see also pe 116, BIR rec.), Un March 29, 1952, the petitioner requested the respondent to withhold the execution of the ware rant of distraint and levy and to silow ila an oppere tunity te further explain his (former's) side en the sugar quota (Exhibit 19). ‘ody on April 6, 1962, he supplemented hfs letter ef March “9, 1952 and requested foe the recensidesation ef the resmondent's stand au for the revocation of the warren. (Bxainli A, pp. late 125, BIR rec.).

290

Wuweae Zw

GCeT.A. CASE NO, 42 ota Finally, the respondent, en July 29, 1955, ree duced the valuation ef the suger quota from #5,.00 to #1,00 per pigul, thereby also reducing the assessment to #5,697.70 and #1,311.25, respectively, as deficiency estate and inheritance taxes, plus 5% sur¢harge and interest (Exhibit 21, pp» 141-142, BIR ree.).

On September 16, 1957, the petitioner re¢eived warrants, dated January 15 and 16, 1957 (Exhibits K and Ly ppe 34395, CTA vee.), distraining and levying his properties fer unpaid balance of estate and inher{= tanse taxes and penalties in the sume of # 2,624.16 and #11,391.02, Subsequently, the respondent issued a noe tice of seizure of the petitioner's real property losated at 140 Vito Cruz, Manila, with the advertence of its sale at publie auction on November 4, 1957 (Exhibit My pe 36, CTA ree.). On September 26, 1957, the petitioner re= quested for the cangellation of the notice of seizure and the cerresponding warrants of distraint and levy (Exhibit Ny, pe37, SIR reg.), whieh request was denied on Ostober 11, 1957 (Exhibit ©, p. 171, SI ret.).

On Gstober 12,1957, the petitioner filed before this Court his "Petition for Review and Prohibition With Preliminary Injunetion,” On the ingidental question of whether o¢ not the seheduled sale at public austien, on November 4, 1957, of the petitioner's property at 140 Vito Crug, Manila should be suspended and/or cancelled, this Court, in its Resolution of Ostober 30, 1957, caneelled said scheduled sale on the grounds that (1) “the assessment dated July 201

DeECISION~

C.T.A. CASE NO. 425 -5- 29, 1955 is primes facie 1lJegsl in that it was made beyond the five-year period" provided under Section 331 of the Tax Code; and (2) that, "if the warrant fe) Gistraint and levy as well as the notice of seizure respectively served on petitioner on September 16 an 18, 1957 were to be founded upon the assevsaent date July 17, 1946 ani the supplements? demanl of Septemb 9, 1949, respondent's attempt to collect the same wo f d d er filed a motion to dismiss the petitito DY riew and prohibition with preliminary injunct t | mand that the said petition was not filed within the \~jar period preserthed i: 6 isn 11 of Republic Act ‘to, 1125. Hesolvin is motion, this Court, in a mijor opinion dated January 27, 1959, held -tition to have been seasonably filed.

On March 12, 1955, th esponient fri During the hearing of the case on its merits, parties stipulatea es follo "1. That the destruction of certain pro- perties mentioned in the estate and inherite ance tax returns for the late Aneel Javeliana (Exhibit 'DP') has been verified and found core rect as per Exhibits '2' and '2-A' (pp. Lil and 109 respectively of the BIN records), "2, That all the properties of the de- ceased spouses Pilar Javellana and Angel Ja- vellana are enumerated in the estate and in- heritance tax returns (Exhibits ‘A' and 'B') except the following:

inswe DEC ION eo ColeAe GASE NO, 425 «6.

(a) Lot Noe 1326 logated at Jaro a with the assessed value of 24,500.00 separate propetty of the deceased Angel Javellana).

(ob) Sugar quota of 11,558.21 piculs (conjugal property of the deceased spouses), “The above two items represent the only eontroverted items in this case for purposes of deficiency assessment, "3, That in the deficiency assessment (Exhibit "H') the sugar quota was valued at one peso (#1,00) per picul for the reasons steted in Exhibits *1* and *5* (pp, 134 and 138 respectively, 8IR records), “4, That this is only a pertial stipu=- lation of fects and, theretore, the evidence already submitted or to be subm{tted shell govern points not cevered by this stipula= tion.” (Fp. 137©138, CIA rec.)

This case yields the following tssues;

i. Whether or not the right of the respondent to eelleet the alleged deficiency estate and inher{tance taxes has already preserived;

2 Whether or not the deffclency assessment in qaestion is illegal and/or erroneous; and 3 Whether or not the respondent is lieble for damages.

The resolution of the first issue turns upon the application of Sections 33] and 332(c¢) of the Tax Code, the pertinent previsions of which read:

"SEC, 331. | appes » Succeeding seetion, internale revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purposes of this section a return filed 293

DECE IGN «

GeTeAe GSE NO, 42 o J « before the last day prescribed dy law for the filing thereof shall be goeneidered as €iled on such last days aera that this limitation shall not apply to cases already investigated prior to the approval of this Code.“ "SEC, 332, x xX X

(c) Where the assessment of any ine ternalerevenue tax has been made wt the period of limitation asbove-preseribed such tax may be colleeted by distraint or levy or by in court, but only if begun (2 with ment t in deve eo after the aseess~ xe or (2) prior to the expirae ticn of any period for eellestion agreed upon in writing by the Colleetce of Internal Revenue and the taxpayer before the expirae tion of such fiveeyecr period, x x x."

It 18 suggested, on behalf of the petitioner, that the respondent could colleet the alleged deficiency taxes only within five years fron July 17, 1946 when the first deficiency assessment was made, Having failed to initiate the ¢olleetion within the said five years, the right of the respendent to collect the same has prese eribed. It is equally urged that the petitioner's pro- tests and requests for explanation of the various assesse ments did not interrupt the running of the presertptive period, However, it ie argued by the respondent thet the fiveeyear period within whieh he was authorized by law to collect the defictency taxes should be ¢ounted from the issuance of the revised assessment of July 2%, 1955, From the foregoing finding cf fasts, it appears that the initial defielensy assesement, datea July 17, 1946, was made within five yeers fron and after the filing ef the estate and inheritanee tax returns. During the 2904 w DECISIG! ~ GeTeAs GCASEK 1Q, 425 interim between the initial and final defi¢ieney aseess= ments, the petitioner has intermittently requested for a copy of the initial deficiengy assesement in order to give reasons why he was not liable therefor (Exhibit 12, Pe 61, BIR ree.)s for necessary details as to the nature of the defielency taxes and of the items in the returns upon whieh the same were based (Exhibit 14, p. 64, 3IK rec.); for the withholding of the exeegution of the ware rent ef distraint and levy, and allowanée ef an oppore tunity to further explain his side on the sugar quota (Exhibit 19, p. 121, BIR ree.); and for the reconsidera~ tion of the respondent's stand, and revecation ef the. Said werrant (Exhibit 20, pp. 1%4«125, BIR rec.) 4 view of these various requests, it is more reasenable to conclude that the respondent desisted from enforeing the collection by; proeeeding in court within five years from the initial deficiency assessment begause he wanted to afford the petitioner with every opportunity to dise pute the correctness of the assesement, After heving persuaded the respondent to reduce the deficiensy assese~ ment, and consequently to defer the colleetien of the tax, the petitioner may not now be allowed to profit from sugh postponement, thereby evading his tax liability, if there be any, on the ground of mere legal technicality. | To held, as urged upen us, that the postponement of the cole leetion ef the alleged deficiency taxes has foreelosed ‘respondent from preseeding with the sellestion threugh judicial means is obviously unfair and prejudicial to 299

J

SY

.

DECS IGN «

GeTeAe CASE NO, 6D

«Je

the government, The Supreme Court, {na Colleetor vs. Suyoe Consolidated Mining Co.» et aleg G Re NO. Leo 11527, November 2, 1958, where the Collector was forced to a similar situation, said:

“It is obvious from the europeans that petitioner refrained from collecting the tax by distraint or levy or by pro- Gentine in court within the S-yeor period from the filing of the se¢ond amended final return due to the several requests of respondent for extension to which pe- tioner yielded to give it every opportunity to prove its claim regarding the correct- ness of the assessment. Because of such me are Several reinvestigatlons were and a hearing was even held by the Conference Staff organized in the cellec- tion office to consider claims of such nature whieh, as the reeord shows, lasted for several months. After Inducing peti- ticner to delay gellection as he in facet aid, it Is most unfair for respondent to now take advantage of such desistance to elude his deficiengy income tax liability to the posewssee of the Government invoking the techntcal ground of preserfption.”

“While we may agree with the Court of Tax Appeals that e mere request for reex= amination or reinvestigation may not heve the eifect of suspending the running of the period of limitatien for in such a case there is need of a itten agreement to extend the period petween the Collector and the taxpayer, Vthere are cases however where a taxpayer may be prevented from setting up the defense of prescription even tf he has not nat pee waived {it In writing as when by his repeated ree quests or positive acts the Government hes been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harrassment or injustice {5s meant by the Government, And when such situation Gomes to pass there are suthorittes that hold, based on weighty reasons, that such an att{tude or behavior ehould not be countenanced iz only to protest the ine terest of the Government," 296 CeTeAs CASE NO, 425 = 10 « Consequently, we believe, and so held, that the res- pendent's right to cellect the alleged deiiciency estate and inheritance taxes by a preseeding in court has net preseribed, We now come to the issue ef whether or not the deo fieiency assessment under consideration is illegal and/or erroneous, The imputation of illegality and/or errer ef the essesement in question is limited to questies regarding the sugar queta ef 11,558.51 piculs, which, at stipulated, constituted a conjugal preperty of petitioner's parents, and Let No. 1326, which, as likewise stipulated, was a seo parate property ef Angel Javellana and hed an assessed value of 24,500.00, Relative to the question invelving the sugar quota which the respendent valued at #1.00 rer picul, the pee titioner contends that said quota should not he ineluded as part of the taxable estate because it had ne market value on the dates of his parents’ demises that its value was already included in the assesement of the lead, and that being a mere privilege granted by the state, it is doubtful tf the same could be treated as taxable preperty.

\ a suger quota, otherwise technically referred te as “plantation-owner's allotment", means the qantity ef sugar ef a stated class which in a given year may, in the case ef A and 5 sugar be marketed, and in the case ef C suger be held as « reserve, by the owner and/or planters ef the plantation goncerned (Executive Orders Nos. 873 and 835, deted September 30, 1935 and Ostebexr 12, 1935, respectively, Exhibits 2 end 3, pp.

297

DECISION «

C.T.A. CASE NO, 425 ~ ll» 83-91, SIR rec.). Like any other specie of property, it mty be transferred either in whole or in part, by or in connection with a transfer of plantations or areas to which they pertain, or independently thereof, eubject to the conditions stated In Executive Order Ne, 873. In faet, suger qectes were and are still being sold or leased for monetary considerations. They “gan be sold in the year 1941 for #5.00 and in the year 1945 for #6.00 pez picul* (p. 95, 8IR rec.). However, in view of the fact “that the valuation dates in ques- tion are the two (2). hectic perieds of the war {inva~ sion and liberation) whea no concrete evidence of values can be had” (Exhibit 5, p. 138, BIR re¢.), we presume that the respondent's valuation of the sugar quote under consideration at #1.00 per picul is prima facie correct (see Interprovineial Autebus Ce., Inc. vs. Collestor, G. Re No. L674], January 31, 1956; see also Commiseioner ve. Robertson, 75 F (2d) 540; Estate of William MeDeygali, 45 BIA 803, 807). The petitioner's general allegation that the sugar queta did not have market value on the dates of his parent's demise is not sufficient te over= come this presumption of correctness. ~ Moreover, even granting that there was then no market value, the absen¢e of market price is not a barrier to valuation (Guggen- heim v. Raequin, 312 U.S. 254, 65 L. 6d. 813; see also Lueas v. Alexander, 2779 U.S. 573, 73 L. ed. 831), for an impertant element in the value of the property {1s the use to which it may be put (Susquehanna Power Co. v. State Tax Commission, 293 U.S. 21, 296, 75 L. ed. 1042).

298

DECI ION -

C.T.A. CASE NO, 425 ~12« AS cegards the petitioner's objection to the ine clusion of the sugar quota as part of the taxable estate on the ground that the value thereof has already been included in the assessment of the land, we find the same to be without merit. We find no evidence in record to sail Ani opjeetion, The suggestion that a sugar quota is @ mere pri- vilege granted by the state, and, therefore, it is doubte ful if the same can be treated as taxable property is equally without merit, A sugar quota, once granted by the government and until withdrawn from the sugar planter, is a property or property right, the devolution oi which constitutes a transfer or shifting of the economic bene» €its and burdens of property, | Relative to Lot No, 1326, which, as stipulated by the parties, was a separate property of the petitioner's father, its value of #4,500,00 should be considered only in the estate of his father, in computing the estate and inheritance taxes due thereon, The fastant appeal on the legality or illegality of the deficiency assessment having been limited to the questions relative to the sugar quota and Lot No, 1520, we are not at iiberty to disturb the respondent's deter minations on the other real and persenal properties of the petitioner's deceased parents. Consequently, we find, and so hold, that there is due from the petitioner the total sum of #5,475,55 as defifieiency estate anc fine 299

Dd

DECIS ION ~

Gols Ae CASE NO, 4 13 heritance taxes, Ingluding S% surcharge.

Having determined a deficiency against the peti- tioner, we find it unnecessary to pass upon the quese tion of damages.

WHEREFGRE, the decision appealed from is hereby modified in the sense that the petitioner is ordered to pay to the respondent or his authorized agent the sum of 95,475.55, computed in Annex "A* hereof, with the corresponding interests from Mareh 1, 1946. With costs against the petitioner.

$0 ORDERED.

Manila, September 21, 1959, -“

a= IANO WA

Presidiag Judge

I reserve my vote.

4 esl te ta

Asseciate Judge

260

DECTS ION «

GeTeAe CASE NO, 435 aunEX "A" Estate of PILAR A, DE JAVELLANA Estate tax ceoccccceccccecccsccce F 6,833.12 3% Surcharge on #1,515.97 ccccecs Total ceccccvcccevecccscececccees * ® Lees amount paid cccscccccccccece Deficiency estate Tax GUe cccccccccccccccce P1,091.77 Inher itanee tax ©4200 0888 C8 O88 OB0 £10,079. 18 5% Surcharge on #2,409.33 cccce Total OOOOH OBSHOHOHHOHOSEHHHOCEOSE i] LeGS amount PAld ceccccccccececce Deficienesy inheritance tax due 008000000080 000000CCCHCOHOOOOOOC®E 20222280 TOTAL SOCHOKSOCHOHSHOSHOHSOOSHSSSOSSOSCOOOCHE 84,121.57

Estate of ANGEL JAVELLANA

Estate tax gag ay aati BP mar 4 5% Surcharge On #467.0T7 ceccccse Tetal SPOCHOHSOSHSHSHSOSOHOSCHCHOSCOOESEOCOCOS 9’ ; e Less amount paid CoOnDneeoeoecoocce Deficiency estate tax Gue cccccccccccccccee BF 490,42 one tax ae #11,848.39 Surcharge on #822.44 .ccecces Total SCCHSHOOHCSCHCHOHOCOCESHROSCSCOBBOC®S s o Less amount paid cecccccccccccss we oy om inheritance BX GUC socccccccccccccccccccccccccecoces eee =< PT TOTAL SSCHOHSHOSHSSHSSOOSSCHSSHOSSCSOEOE #£1,353.96 261