CTA Case No. 2094 (Decision)

ll�PUBL1C OF TII r<: PlliUVP ''i '>':, v COTJRT OF T~'l{ APPEALS - GCUON C4TY CARMEN G. VDA. DE ENAGE, / Petitioner, - versus - C.T.A. CASE NO. 2094 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - --X DEC I S I 0 N This is an appeal from the decision of res- pondent Co~missioner of Internal Revenue assess- ing the estate of the late Francisco Enage y Abella who died on January 12, 1959 the sums of ~91,109.47 and ~55,802.79 for estate and inheritance taxes, r espectively, or a total of ~146,912.26 inclusive of penalties. Petitioner filed on June 16, 1959 with the res- pendent the estate and inhe r i tance tax return on the estate left by her deceased husband declaring therein a gross estate of ~167,780.00 subject to tax and the amount of ~1,167.16 and ~940.71 as estate and in- heritance taxes, respectively. Upon investigation , however, respondent ' s re- venue examine r reported a gross e s tate of ~656,494.00 20 5 �

DECISION - CTA CASE � NO. 2094 - 2- subjec t to tax upon findings of petitioner ' s failure to declare the true facts about. the ownership of decedent ' s properties and the f air market value thereof. Thus, respondent. in a letter dated June 6, 1969 advised the petitioner of the discrepancy with an invitation to a conference for purposes of threshing out the disquieting areas of differ- ence. Petitioner on June 30, 1969 bided for a July 15, 1969 conference which respondent acceded. Suffice it to state, in a letter dated July 30 1 1969, respondent issued Assessment Notices No. EA-43-041929-59/69 and demanded from petitioner the amoun t s of P91,109.47 and P55,802.79 as estate and inheritance taxes, respectively, inclusive. of surcharge, interest and penalties (Exhs. 7, 7-A and 7-B, Re~pondent, pp. 44-46, BIR records)~ com- puted as follows: Real properties ��������������������.� P241,550.00 Personal properties ������������������ 17,600 . 00 Total conj ugal properties ������.��.�� P259,150.00 Less: Funeral expenses ��� P ,6,.720.00 Claims v. estate ��� 38,529.24 Share of spouse ���� 106,950.38 Pl52,199.62 Share from the conjugal estate ��� ���� 106,950.38 Add: Exclusive properties ����������� 397 , 344.00 Net estate ..�............ . . .. ....... 504,294.38 20 6

DECISION - CTA CASE NO. 2094 - 3- Estate tax ��� �������� � ���.���� ��.��� ~ 43,588.27 Distributive estate ����������� � ��� � � P460,706.11 Share of each heir � ��������.�� � ����� P 76,784.35 Inheritance tax ��������������.������ P 26,844.72 Estate tax p 43,588.27 ���� � ����� 8 ������� �������� 50% surcharge �.���� � ���.��.�..�..��. 21,794.13 ~% def. mo. int. from 10/12/59 to 8/12/69 �������������� 25,717 . 07 Compromise- no notice of death .�� �� 10.00 p 91,109.47 Inheritance tax ..................... ~ 26,844.72 50% surcharge ��.�����.�. . ....�.��.�� 13,422.36 ~% def. mo. i nt. from 1/12/60 to 8/12/69 ���� . ��������� 15,435.71 Compromise- no CPA certificate ����� 100 .00 p 55,802.79 The 50% surcharge was imposed for f ailure of peti- tioner to declare in the return the true facts about the real property ownership of the deceased. Petitioner protested the assessment in a letter dated Octobe r 17, 1969 with a request for a 30-day period upon which to submit a memorandum which res- pondent gr an ted until January 5, 1970 otherwise the collection of subject amounts due on the transmission of the decedent ' s estate will be enforced imme d iately (p . 51, BIR records)~ On March 10, 1970, to enforce collection, res- pondent directed the service and execution of the Warrant of Levy on real p[operty and Warrant of Dis- traint on personal property both dated February 11, 1970 aga ins t the estate of the late Franscisco Enage y Abella i n the ~urns of P91,109.47 and ~55,802.79 re- 207

DECISION - CTA CASE NQ. 2094 - 4- presenting estate and i nheritance taxes, respec- tively, (received by petitioner on March 19 , 1970) ~ under aforesaid assessment notices due on the trans- mission of the Estate under letter of demand dated July 30, 1969 (Exhs. 7 and 8-4, pp. 56-57, BIR records) �. On April 18, 1970, petitioner took this recourse of a review. Taking exception, petitioner posits a three-fold concern: 1) .That. the estate and inheritance tax return reflected the true facts of ownership based on the assessed values of the decedent's estate so declared in good faith, 2) Jhat the Warrants of Dis- traint and Levy were issued precipitately without the resolution of the protest, and 3) .That the right of the respondent to assess and collect the additional taxes by way of deficiency had already prescribed considering tha t more than five (5) .years have elapsed from the filing of the return on June 16, 1959 to the rece ipt of the assessment notices on September 19, 1969. The foregoing raises the basic issues in the case at bar. In faulting the first, respondent interposes the disturbing discrepancy contained in the examiner's report dated August 5, 19~8, v i s a vis the declaration, thus: 20 8

DECISION - CTA CASE NQ. 2094 - 5- "Investigation disclosed that the deceden t left real and personal proper - ties si tuated in Quezon City and the Province of Leyte. Records of the Re- gister of Deeds in Quezon City showed that decedent has no other real property in Quezon City except that declared in the return filed. The fair market value o f the Q.C. real property during the ti me of death of the decedent was appraised at ~70.00/sq.m. or a to tal value of ~241,550 . 9 0. With regards to the properties situated in � the Province of Leyte, the fai r market val ue- was detSrmined by ExaMiner Antonio y Brillo of Insp. Dist. No. 43, Tacloban City, in his indorsement dated November 25, 1 964 and i t amount ed to ~393,344.00. Upon interview with the surviving spouse, it was determined that the properties left by the decedent, with the exception of the Quezon City property, were all exclusive proper- . ties 6f the decedent, but the heirs made it appear in the return they were all con- jugal properties. There was a clear attempt t o defraud the government of its rightful share of the taxes due from the estate. A recompu tation of the estate and inheritance taxes was made based on the above findings showed that there is still due and collect- i ble from the estate the estate the amount o f ~137,619.18 as defi6iency estate and in- herita nce t axes, surcharges and penalties. Please refer to the attached worksheets. This was expla i ned to the surviving spouse and she alleges that as far as she was con- cerned all taxes due to the government was already paid." (Exh. 5 11 11 p. 12, records) . , The indorsement above-mentioned (Exh. 11 2 " , p. 17, records) finds: "Respectfully returned to the Chief Revenue Officer, Tacloban City, the within communication, dated December 3, 1962 of the Regional Director of Quezon City, in connection with the real properties left in Tacloban City by the.late Francisco Enage, who died on J anuar y 12 , 1959, with the following tax declaration obtained from the Office of the City Assessor, viz: 20 f.}

DECISION - CTA CASE NO. 2094 - 6- Kind of Property Tax Decl. No. Assessed Value 1. Commercial Building 11258 fl20,0 00.00 2. Real Property 12236 12,000. 00 3. Agricultural l and 240.00 4. Real Property 29 95 4,270. 00 5. Real Property 29 96 970.00 6. Real Property 10955 910.00 7. Commercial Building 11257 8,000 . 00 12 010 fl46,390.00 'IDI'AL ASSESSED VALUE OF PROPERTIES FAIR MARKET VALUE 1. Commercial Bldg. less depreciation (11258).fll8,000.00 2. Commercial l ot - Tax Decl. 12236 ��������� 250,000.00 3. Agricultural land - Tax Decl. 2995 but converted into urban residential land at fl4 .00 a sq. meter (16,148 x 4) �.���� 64,592.00 4. M.S.A.V - 86 - -Tax Decl . 10955 - - (162.30 X 100 .00) ���������������������� 16,230.00 5. Lot No. 140 - Tax Decl. No. 11257 (90.62 X 100 .00) ����������� � ����������� 9,062.00 6. Commercial Lot - TaX Decl. No. 2996 (284.60 X 100.00) � ����� � �������� � � �� ��� 28,460 .00 7. Commercial Bldg. Tax� Decl. No. 12010 less depreciation �� ������ �������������� 7,000.00 TOTAL FAIR MARKET VALUE OF PROPERTIES �� fl393,344.00 With resp~ct to item No. 2, the c om - mercial l ot situated at the corner of Tarcela and Rizal streets, it has a very high fair market valuation in view of the fact that sometime in the latte r part of 1963 or early part of 1964 an old chinaman by the nickname "Hopia ", who is residing at Malitbog, Leyte del Sur, purchased the said lot for fl360,0 00.0 0 from the heirs of Francisco Enage in Manila. So that a f air market value of fl250 , 000.00 as o f Jan uary 12, 1959 , would be regular and pr oportional with the time lag between 1959 and 1964 . Item 3 was formerly classified as agri- cu l tu~a l la nd suited to coconuts. But from 1951 or the reabou ts, when the Coca-Cola Plant at Kilometer 5 was installed the area from bar rio Sagcahan . up to barrio Marasbaras, Tacloban City, became r esidential and the pr ice per square meter shot up from fifty . 21 0

DECISION - CTA CASE NO. 2094 - 7- centavos to the present rate of eight pesos. So t hat, as o f J anuar y 12, 1959, a fair market value of ~4 .00 per square meter would be acceptable to all buyers o f land along tha t area. Items Nos. 4, 5 and 6 are all corn~ � rnercial lots situated in the City proper. All of these lots command a very high price especially after the August 10, 1961 fire. According to P.N.B. sources, the commercial lots along Gran Capitan, Rizal Avenue, P. zamora streets, or with- in a distance of 20 to 30 meters from the Tacloban Public Marke4 are appraised from ~400.00 to ~500.00 per square meter. It is done only for lending purposes. For example, the lot of Mr. Daido Quinte ro at P. Zamora Street, with an area of 330 square meters. The local P.N.B. branch f acil itated him with a loan of ~72,000.00 sometime in 1962. So that if the lending risk is only fifty per cent of the appraised value, the bank must have appraised the said lot at ~439.00 per square meter. Therefore, as of January 12, 1959, it is safe to assume that the fair market value may be appraised at ~100.00 p er square meter. Both commercial bui ldings per items Nos. 1 and 7 can be appraised only minus their respective depreciation but with the added significance that they are situated or erected in commercial lots of the city proper. Thus, their fair market values of ~18 ,000.00 and ~7,000.00, respectively, ~ltho conjectural, nevertheless, would still command that price." The appraisal made by the respondent on the basis of the report of his revenue examiner appears to have been arrived at after taking into account the various factors determinative of the approximate fair market value of the property left by the decedent. And, "under Section 9 1 of the Re venu e Code, the real pro- perty is required to be appraised at its fair market 21l

DECISION - CTA CASE NO. 2094 - 8- value and the assessed value thereof shall be con- sidered as the fair market value only when evidence to the contrary has not been shown." (PNB vs. Com- missioner of Internal Revenue, CTA Case No. 1348, April 30, 1966) ~ It has been shown in this case that the assessed values of the decedent's proper- ties do not represent their fair market value. We feel that, "The repo rt itself furnishes the best means of its own exposition. The factual findings are not short of specific support in terms of tract- able data and relevant records laid and fully dis- closed, as such, deserves the credence that should normally be accorded in the absence of contrary evidence. And, not that the examiner's credentials are impeccable but to his favor must be concede d the presumption of regularity in the performance of official duty (Sec. m-5, Rule 131, Revised Rules of Court; u.s. v. Escalante, 36 Phil. 743 ; 31 C . J.S.) which has not been disproved by any affirmative evidence of irregularity or unlawful conduct. Accord- ingly, we feel compelled to affirm the import and force of the report of findings which may not be suffered to petrify in futility." (Prima Business Machines, Inc. v. Commissioner of Internal Revenue, C.T.A. Case No. 2 9 90, Au~ust 31, 1981) ~ Accordingly, upon the facts of record, the valuation placed upon

DECISION - CTA CASE NO . 2094 - .9 - said properties by respondent is the current fair market value thereof for estate and inheritance tax purpose. The records further disc lose that by pet it ioner 's own admission most of the properties are the exclusive properties or capital of the decedent, thus articu lated: Q. How about that property in Tacloban, the urban and coconut land at Liran~? A. I understand that he inherited those from his f ather. Q. How abo u t the property in Gran Capitan, Tacloban , a residential l ot with improvement?? A. He acquired that thru his profession as a lawyer. Q. Before marriag~? A. Yes, but a parcel of that property was purchased from the Bureau of Lands during our ma rriage. Q. How about this property, a residential lot with improvement at Rizal Ave., Tacloban City? A. That property reverted to the Govern- ment, but after that we bought it back from the Bureau of Lands dur ing our marr i age. Q. How about that property No. 5, the coco- nut and rice land at Panalar an , Tacloabn City? A. No. I don 't know that. Q. How about the residential lot with i mprove- ment in F. Zamora, Tacloban City? A. That was acquired by him thru inher itanc e from his brother during our marriage. (t.s.n . , pp. 17-19, Hearing August 26 , 1974) 21 3

DECISION - CTA CASE NO . 2094 - 10 - We view with ease respondent ' s righteous in4ig- nation that fraud was committed in the preparation of the estate and inhetitance tax return (Exh. 1-C) which treated all the properties as conjugal, hence ~ pertains to the surviving spouse and not sujbect to tax. The failure or omission to declare the true facts of decedent's real p roperties resulting in a tax loss to the goverr:ment could not have been an oversight or mistake � ~ as the estate and inheritance tax return was prepared by a lawyer-son of the dece- dent and duly signed by petitioner, who is a profes- sional . Personal knowledge of the contents of the return and the wilfulness of filing can be imputed or inferred (Cooper v. u.s. 9 F 2d pa rs . ( 4) _and (5) '� cited in Juan D. Nassr v. Commissioner of Inter nal Revenue, CTA Case No. 1668, August 18, 1970) ~ Since proof of fraud must center on "wilfulness" as its crucial core, and wilfulness being enmeshed as it must be with "intent" and "state of mind", it is hardly susceptible of proof by direct evidence . Circumstantial evidence is therefore admissible on the i ssue of fraud (U.S. vs. Commerford, 44 F (2d) 28, 30, cited by Balter, Fraud Under the Federal Tax Law, p. 594; Li Yao v . Collec tor of Internal Revenue, CTA Case No . 30, July 31, . 1956; see also Republic of the Philippines v . Blas Gonzales, G.R. No. L-1 79 6 ?, -~ 21 :}

- �-"' DECISION - CTA CASE NO. 2094 - 11 - April 30, 1965) ~ So it appears that petitioner ' s asseveration of good faith becomes incomprehensible and excites no longer any justification unde r the circumstances, having lagged behind in credulity. We uphold respondent. The alleged precipitate issuance of the Warrants of Distraint and Levy in the second, brings us to the rule of repeated decisions, that, "Where the warrant of distraint and levy was issued, this Court held that such issuance is proof of the finality of the assessment (Philippine Planters Investment Co., Inc. v. Actg. Commissioner of Internal Revenue, CTA Case No. 1266, November 11, 1962) because a warrant of distraint ~nd levy, which is the most drastic action of all media of enforcing the collection of tax, renders hopeless a request for reconsideration, or is tantamount to an outright denial thereof, and makes the said request deemed rejected. (Hilado v . Commissioner of In terna l Revenue, CTA Case No. 1256, October 20, 1956, Algue Inc. vs. Commissioner of Internal Revenue, CTA Case No. 1620, January 16, 1968; cited in Advertising Associates, Inc. v . Commissioner of Internal Revenue, CTA Case No. 3017, June 17, 1981) ~ We hesitate to further fashion an issue into a satis- factorily settled legal situation. Thirdly, the prescription pressed by petitioner 215

- 0c DECISION - CTA CASE NQ. 2094 - 12 - under Section 3Jl of the Tax Code, providing that an assess~ent be brought within five (5) _years after the return was filed, erects no shield against the application of Section 332(a) _of the same Code, in - sofar as the same is brought to bear upon the circum- stances of petitioner in the case at bar. Thus pro- vided: "Sec. 332. Exception as to period o f limitation of assessment and collection of taxes. - (a) In the case of a false or fraudulent retuin with intent to evade tax or of a f ailur e 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 xxx". Having - reached the conclusion that the subject return was fraudulent, respondent has ten (10) _years from the date of discovery of the fr aud within which to issue the assessment. The fraud was discovered on August 5, 1968 when respondent's examiner who investigated the case reported that the real proper- ties listed in the return, with the exception of the Quezon City properties, were all the exclusive proper- ties of the decedent, contrary to the heirs' claim as appearing in the estate and inheritance tax return. The assessment was actually issued on July 30, 1969, well within the reglement~ry 10-year period. Like - wise, the answer to the petition for review, which has the effect of a judicial action for collection of 21 C

- -- DECISION - CTA CASE NO. 2094 - 13 - the tax, was f iled on July 8, 1970. And, since the fraud was discovered on August 5, 1968, the collect- ion, deemed made with the filing of the answer is similarly within the period prescribed under the same section (Tan Gu a n v. Aranas, CTA Case No. 535, Feb. 25, 1961, affirmed in G.R. No. L- 18598, 24 SCRA 9J; Priscilla Estate, Inc. v. Coll. of Internal Re- venue, CTA Case No. 334, November 29, 1960, affirmed in G.R. No. L-18282, May 29, 1964, 11 SCRA 13 0; Bollozos v. Coll. of Int. Rev., CTA Case No. 618, September 9 , 1959, affirmed in G.R. No. L-16441, March 31, 1965, 13 SCRA 469) ~ The prophylactic func- tion of Section 332(a) ~ supra, could but provide the necessary legal catharsis under the situation. Accordingly, we hold that respondent Commissioner of Internal Revenue did not err in ordering petitioner Carmen G. Vda. de Enage to pay the amounts of ~91,109.47 and P55 , 802.79 representing estate and inheritance taxes due in the transmission of the estate of the late Francisco Enage y Abella, inclusive of the penal- ties incident to the delinquency. WHEREFORE, petition is hereby dismissed with costs against petitioner. 217

- w DECISION - CTA CASE NO. 2094 - 14 - SO ORDERED. Quezon City, Metro Manila, April 15, 1982. I CONCUR: Associate Judge CONSTANTE C. ROAQUIN is on leave.