CTA Case No. 4381 (Decision)

REPUBLIC OF THE PH ILJPPINES COURT OF TAX APPEALS QUEZON CITY JOSEFINA P. PAJONAR, as administratrix of the Estate of Pedro P. Pajonar, Pet it ioner . - versus - C.T.A . CASE NO. 4381 THE HONORABLE COM ISSIONER OF INTERNAL REVENUE, RPspondent. X- - - - - - - - - - - - - - - - - - - - - - X DECISION This case involves petitioners claim for refund of erroneously paid estate tax in the sum of P1.527.790 .98 or in the alternati\'e the amount of P840 .202 .06 . The following facts are undisputed: During the second World War . Pedro P. Pajonar . a Uni ted . States Philippine Scout Soldier. \\�as assigned in Bataan. There he was captured and tmprisoned by the .Japanese soldiers. During his incarceration. he suffered mental shock and tater became msane . After the war . he recei\�ed monthly pensl(ln from the United States \"eteran s Administration (USVA .t. thru the Philippine .:\a tiona! Bank (Pi~B t. as legal guardian. By reason nf I

DECISI ON - CTA CASE NO. 438 1 Page 2 insanity, the Court appointed his sister, josefina Pajonar. herein petitioner. as guardian over the person of Pedro P. Pajonar. On january 10, 1988, Pedro died single [Exh. D). with no descendants and ascendants, leaving as heirs his brothers. Isidro and Gregorio. and sister. josefina. and nephews and niece, the sons and daughter of Angela, namely: Concordia, Mario and Conchita. He was domiciled at Lagtangon, Bonbonon, Siaton, Negros Oriental at the time of his death. On April 5. 1988. petitioner filed with the Bureau of Internal Revenue the Estate Tax Return of the decedent, showing an Estate Tax Due of P2.557.00 . [p. 24. BIR record.} The following documents were attached to the Estate Tax Return: 1. Audit Report dated March 18, 1988 [Exh. E} ; 2. Schedule I - Real Properties of the deceased; and 3. Schedule II - Personal Properties. [Exh. Fl The amount of P2,557.00 was paid to the Bureau as evidenced by BIR Payment Order No. C 2208857 dated April 5. 1988 [Exh. AA] and CB Confirmation Receipt No. B 14268064 dated April 5. 1988 !Exh. BBl. In order to settle the properties of the decedent, PNB, as tru stee of the assets of the deceased, requested herein �petitioner to execute an extra-judicial settlement. !Exh. I-1.1 The extra - judicial settlement was published as evidenced by the Affidavit of the publisher dated Ap ril 14, 1988 . !Exh. 1.] I

DECISION - CTA CASE NO. 438 J Page 3 Upon submission of the extra-judicial settlement agreement. PNB further requested petitioner to post a surety bond in the sum of P2.731,693.36 . On April ). 1988. PNB paid Stronghold Insurance Co.. Inc.. the amount of P)9,34l.40, covering the premium plus other miscellaneous payments, for the surety bond issued in favor of petitioner. lExhs. Jand K.l On May 19, 1988, a case v;as filed for the settlement of the intestate estate of the late Pedro P. Pajonar in the Regional Trial Court (Branch XLIII) of Dlimaguete City docketed as Special Proceedings No. 2399. lExh. B.) llle corresponding filing fees and legal research fees were paid on the same date. lEills. P;�Q and R.l The Notificatory Order dated May 20. 1988 issued by the Regional Trial Court of Dumaguete City was published in a newspaper of general circulation in the province of Negros Oriental for three consecutive issues from June t. 8 and 1) , 1988. IExh. S.l Notice t.o Creditors were also posted in the Bulletin Board of the Municipal Hall of Siaton. lExh. W.l On June 6, 1988. petitioner, after posting a bond of P)O,OOO.OO, was appointed Special Administratrix. (Exhs. M and A- 1.1 Subsequently, the court appointed petitioner as the Regular Administratrix of the Intestate Estate of the late Pedro P_. Pajonar. [Exh. A.] On June 28. 1988, Letter pf Authority No. 0019801 NA was issued to rest)Otldenl 's t~:: venue enfot t:e ment ofliu:t tu exa mine the books of accounts of the Estate of Pedro P. Pajonar for estate tax purposes.

DECISION - CTA CASE NO. 4381 Page 4 Upon investigation. the Audit Report, dated December 19, 1988 , prepared by the revenue examiner showed that the Estate of Pedro P. Pajonar is still Hable for Deficiency Estate Tax in the amount of Pl .527.790.98, computed as follows: [p. 80, BIR record.] Per Return Per Investigation Real Properties p 51.189.59 p 102,966.59 Per~onaJ PropertJes 2.759.403.45 2 . ~76,7 34.20 Gross Estate P2 ,81 0.593.04 P2 979 700 .7C) Less: Allowable DeJuctions funeral Expenses p 50.000.00 p 50,000.00 Exempt inves tment in 18..135 1.)_2 bonds ~~ stocks Igo\� 't.) 2.668.336 .05 p 68.33 ) .93 Trustee 's fee~ commi~~ion~ Total Deductions P2,718,336.0S Amount subject to estate tax P 82,256.99 " P2.911.364.8G Estate Tax Due p 2.557 .00 p 1.343.8 14.32 2.557 .00 2.557 .00 Estate Tax Paid NONE p 1.311.257.32 Deficiency Estate Tax Add : Interest from 1-9-88 to 12 - 19-88 186.183 .66 Compromise Penalty No notice of death so.uo No CPA Certificate j 0 0 .00 p 1.527.790.98 Estate Tax Due & Collectible The amount suhject to estate tax per return should tota l P92,2)6 .99 instead of P82.2)6 .99 . /~ I

DECISION - CT A CASE NO. 438 t Page) On the same day. petitioner paid the amount of P1.527,790.98 as reflected in BIR Payment Order No. C 4055766 dated December 16, 1988 [Exh. DDl and CB Confirmation Receipt No. B 15517625 dated December 1~ . 1988 (Exh. EEl. On January 11. 1989. petitioner filed a Protest praying for the refund of the amount of P1,527,790.98 or at the least a portion thereof. !Exh. FF.I The main thrust of petitioner �s protest is her claim that the personal properties of the decedent. majority of which are investments in government stocks and bonds. are tax exempt citing as legal basis Republic Act No.360. Pensions recei\-ed by the legal guardian (PNB) from the USV A for and in behalf of the beneficiary or the decedent is tax exempt. As such investments made by PNB using these funds are likewise exempt from taxation under Republic Act No. 566. Granting arguendo that the entire estate of the decedent are taxable, petitioner's alternative relief prays for the refund of the amount of P840 .202.06, computed as follows : [pp. 5-6. CT A record .] Schedule I - Real Propertv - (1) A parcel of land. cO\-ered by Tax Dec. No. 08 -2355. situated at Bonbonon, Siaton, Neg . Or. P 3,180 .00 (2) A parcel of land , covered by Tax Dec. No. 08 - 1083. situated at Lagtangon. Siaton. Neg. Or . 2.270 .00 (J) House and Lot. situated at 45.739S9 P 51.189~ Lagtangon, Bonbonon. Siaton, Negros Oriental u')OL' J- ./

UEC 15 I! J~~ - CT A CASE NO. 1\3~ 1 Page 6 t 1) Refr igerator p 7.)00 00 12 .l \\all ClocJ..:. E:: so Ga su l. Table~ t.:. Ch :1ir ~ 3.0<)0 .00 t 31 Beddings. Steren. TV . Retam <n 15 700 ou I 41 haranJ.:e. Fl'='rtrJC Fan Fl<lt Jrr>n Tran~lnrmer tx. Corner ~et 7.4()() ()() l)i Toyota Tamara\\- leep _ ]J .)OO .O.Q_ 61.400 .00. ADDITIO:.: _-\L PERSO:<AL PROP. I 6 .1P~m Time Deposit P 200 .000 .00 f7l Stock~ and Ronds 1per acctg . ur to .\ larch 3 1. l 98~ bY PNBl.2 .150.ono on 18' Cash 314 .432 ')O 2.9(-..4 .432 .)0 GRO~~ E~T_\ TE P3 . U2).~:)2 ')() 'I Less: DeducLinns t 11 Hn~pitalizati (l n . funeral and other expenses P 50 .000 .00 f2.l :-.rotarial f ee for� the document of Extrajudicial Settlement t incurred not yet r aid I 607)30il IE,~ h l-ll t 31 Puhlicatinn of P.~traiudJ ci nl (,()() 00 :\ettlem ent 141 Insurance premium un Suret~� requir ed by P:m 5'J.J41 .�1U [E'ih s. J and I( l i)t Premium nn _'\ um ini:.tratri:x Rnncl in ~pe e Prnr _No . 2399 f incurred hut not Yet raid f nr t [F\h L I l o norJ oo i(, i ~;nt8rinl fee of S ur e tY~ l .on n () o :\ ck nmv Jedg me n l (lr Dnnd 1.7) Attorne\- s Fee s in Sp ec. Prnc. " ~ o . 12'> -'l fo r Cua r dian - ~h i !" t iq currPd hut not ye t ')tl non on pai d fort W-.::!1 '�! I ! R 1 1\ t tc�rtw\- ~ F e ':' ~ tn Spe e Proc No z_;q q ! (1r Lett er <: nf �\dminiqr at inn 1 i_ nru r rP.d

DECISION- CT A CASE NO. 4381 Page 7 hut nnt vet patti tnrt [Exh () - was not adm itted by the Co urt! 461.760 .80 (9) Filing Fees [Exhs. P. () and R. l 6 .37 4.88 I 10) Publication of Order, .lu ne 1. 8 & 15. 1988 iss ues of the Dum ; guete Informer !Exh. S.l 600 .00 I 111 Publication of No tice to Creditors Sept 7. 14 & 21 . 1988 issues ot the Dumaguete Informer IExh . T.l 600 .00 ( 121 Certification Fee (or publication on the bulletin board of the ~.lun . Bldg. of Siaton IExh. F l 2 .0 0 (131 Certification Fee for pu blication in the Ca pitol [Exh. V.] 5.00 1141 Certification fee for publication nf Notice to Crt:>ditnr~ [Ex h W.l 5.00 � (151 Attorney 's Fees for the Protest to Assessment and Recovery of excess tax fcontingent fee. not yet paid l !Exh. X - \-:.: as not ad mit ted by the Court .! 600 000 .00 1.301.0 42 .08 Net Estate P 1,7 24.7 90.00 Estate Tax Due p 6~7 )~~ 92 Less: Erroneous 1nterest. -- I- - -� Pavment Order No p 186 .183 .6(\ C- 40) ) 76() Compromise Charge 3so.oo 18c) .s.3 3.c, c) Payment Orde r !'\o. p so 1,055 .26 C-4 0557(,(, Balance of Tax Coll ectible Erroneous Bask Ln (!;!lect ed Pl.341.257.32 Payment Order No. 4055766 ___sjlJ .n') ') .26 Less: Balance of Tn (nllectible REFllN DABLE '\ ~101.1 N T p ~411 . 2 !.1 2 06 The correct sum of rer~onal rrorerty from Jt l to Jt ) ~~ P61 .190 on and not P61.400 no. '� The grn~~ e~tate ~hnuld total P3 07C1 .Rt 2 09 instead of P3 .02 \8 32.)0 v.: t ich i~ nnl\� the tota l of persnnal properti es

DECISION - CT A CASE , 0. 438 I Page 8 Without waiting for respondents deci~ion on the protest. petitioner instituted the petition for review with this Court on June 27. 1989. In response . respondent aJleged that the personal properties of the decedent are not exempt from the estate tax . In claims for refund . the burden is on the petitioner to show the iJlega1ity of the tax or penalty collected or that the determination thereof i~ erroneous. CJaims for refund are construed strictJv against the taxpayer . Presented at is~ue 1s the question of whether or not petitioner is entitled to -the refund of Pl.527.7Cl0 .98 or in the alternative P840 .202 .06 _ Respondent wai\'ed his right to present evidence. He submitted the case based on the pleadings and the BIR records together with his memorandum . Petitioner failed to file her memorandum . Instead. she adopted the petition as her memorandum. We shaH discuss each items as they appear in the Audit Report ( f the reYenue examiner and in the petition as well. Valuatiog of Real Properties: Section 8Jibl of the National Internal Revenue Code provides for the valuation of real rroperties includ ible in the gross estate. The pertinent pr()visinn is hereunder quoted:

DECISION- CT A CASE ;\0. 4381 Page 9 -~~ec 8I JJetermioation of value ol the estate_ - (a) Usurruct_- x x x x x x x x x. (b) Properties. - The es tate shall be ap praised Jt its fair martet \�alue as of the time of l1eath. HO\\�en'r , the appraised value of real property as of the time of death shall be whichever is the hl&.t1~r of I I i the fair market value as get~rJ)line<i. _b y the Ccw1missioner , or r 2 J th e fair mar~:et Yalue as shown in the schedule of valu es fixed tw the Provincial and CitY Assessnrs I.t\ s amended by P.D. 1994 1 The examiner correctly valued the fnur 141 parcels of land owned by the deceased accor ding to their fair market value plus 50 %thereof pursuant to Revenue Au dit J"vle morandum Order No. 1-88 dated Feb ru ary 4 . l C)8 8. '''hich reads : PARAGRAPH 2(dl of RA:\10 .1 -87 is amended to reau as foll n\\�s: f d J If t11e pr(lperty is classified as a fishpond. A~D :\(~RJCPLTl iRAL LA ; 1D PLA:HED TO COO>Nl 1T TOR _\CCO. SliGAR. BJCE. CORN, CITRliS. AND VEGETABLE. THE !\1 AR~ ET VAJ.l rE OF LAND J NC Ll 1 DJ NC.~ Ji\IPRO\"E~IE i\TS shall be in creased hv fiftv I 50~;. 1 also regardless of regional location .�� The Yaluation of the re a! properties transmHted hy the deceased are as follm\�s: [BfR \Vorhsheet. p. 66. RIR record .] ' .1 ' ) 1/ u I .J (_

DECISION - CT A CASE 1�o. 4381 Page 10 Tas Ot>r . A ssPSSPd Valut> BIR No. Location rind Area Ip 61 BIR rec l FMV f.MV �')0% 0~ - 2355 P,(' n bon on . C0ca! 2 22'F P2.)00 00 P 6231 (l(l P 9 34:100 Siaton . ,~ 681) 1)1_1 1.692 .00 "'e gros Oriental ,.OCO Trees 0)-466 Etik-Albiga . Riceland S 0000 9.020 00 22 .560 01) 33.~41) 00 Siaton . 360 00 900 00 1J50 00 Negros Bamboo Oriental Tree 20 - 901 Bond o Cornland ~ 6U01.l 2.7101.11.1 6.768 .00 10 .1)2 .01) Napacao , 1~ . 000 . 00 4) 7,N 59 Siaton . .\fe gros Pl02 .955 59 Oriental 0~ - 073- Bonbonon . House 2.70U .OO Siaton , B73 : egros Oriental Total Since the valuation of respondents examiner was higher than the assessed value nf the provincial assessor that \':hich is higher shall pre~:ail Petitioner did nnt present any evidence to prove that the examiner wa~ wrong in implementing Revenue Audit Memorandum Order ]'.;o. 1-88 on the fair market value of the real properties as certifie d to by the .Municipal Treasurer and the Municipal As~essor of Siaton. fpp . 54-63. BIR record] We find . therefore. that the total fair ma rket value of the real properties of the late Pedro P. Pajnnar i~ P l 02 .q66 .5q in~tead of PSI. 189 )q as reported and declared by petitioner. '} , ) 0 I '.t

DECISION - Page 11 CT A CASE NO. 4381 Personal Properties: Petitioner contends that the personal properties of the decedent majority of which are stocks and bonds invested by P1 Bout of the pensions received hy the decedent from the lfS VA are e:xempt from taxation . She alleged that Republic Act No. 360 provided for the exemption from taxation benefits derived from penstons received from the lfnited States Veterans Ad ministration and Republic Act No. 566 provided for the exemption from taxation investment in government bonds issued by the President. The fu11 text of both Republic Act Nos. 360 and 566 are reproduced hereunder for reference. [Exhs. G and H.l -..., REPUBLIC ACT NO. 360 AN ACT EXEl\fPTING FROl\~I ASSIGNJ\.IENT. TAXATION. CLAIMS OF CREDITOR~� . A TTACH ~IE ,rT. LEVY OR SEIZL1RE. BE~EFfTS DER IVED DY BE. 1EflCI AR IES RESIDI:-JG Lr THE PHILIPPr >:ES L1 :DER L.\ V:'S OF � THE LTNJTED STATES AD. 1JNISTERED RY THE l 1NfTED ST-\TE~ \'ETER . lS .AD 1J NI STRATfO. . Re if em1rted /1 r� tl1e ."PT.1/J!e ani House o( RepreseJJic.l!iu:>.o: oi t!Je P!JI!Ji'pines 1i1 Omgress i l S S e t J J b /t? d 5ECTIO_�:. 1. Payments of benefits due or to r,ec0r.~e due to any person residing in the PhT ppines um er the laws nf the linitecl States administered by the lfnited States Veteran~ Admini~ tratirm ~hall not be a~~ignahle . and ~uct payment~ made to. or on account of. a beneficiary under an v of the laws of lA,

DEC!SlO! - CT A CASE NO 4.181 Page 12 the lfn1ted ~tates admm1stered l""~y the l'n1ted ~tates Veterans Adruini~tr ati on relating to veterans residing in the Philippines ~hall be exempt from taxation a5 \\'ell as from claims of creJ itors . and shaH not be liable to attachment. levy. or seizure by or under any legal or equitable process whatsoever. either before or after receipt by the beneficiary. Such provisions shall not attach to claims of the United ~tates ansmg under such laws nor shaiJ the exemption herein contained as to taxation extend to f!ny_nropEJJ.lU"'~Urchased m part or whoUy__r,lJJ_Q[ such pavments: Pronded. That if the benefits be insurance payable by reason of yearly renewable term or of United States Government or National Service Life f converted l Insurance issued by the United States. the e~emption herein provided shalJ be inapplicable to indebtedness existing against the particular insurance contract upon the maturity of which the claim is based. whether such indebtedness be in the form of liens to secure unpaid premiums, of loans. or interest on such premiums or loans. or ind ebtedness ansmg from overpayments _.._,or divir ends. refunds, loans, or other insurance benefits. [Underscoring supplied .} SEC. 2. This Act shall take effect upon its approvaL Ap proved. June 9. 1949. REPUBLIC ACT NO_ 566 AN ACT TO PRO\'JDE THAT BONDS. CERTIFICATES A~D OTHER Er IDEXCES OF I~DEBTEDNESS ISSPED BY THE PRES IDE\T ( .F THE PH ILIPPI. 'ES PNDER THE PRO\' J:;JONS OF REPL BLJC ACT _llfMRERED TWO HUNDRED SIXTY -SIX. SHALL BE EXE\1PT FROM TAXATil} OR ASSESS l\:lE.JT.

DECISION - CT A CASE NO. 4381 Page 13 fie it eJJacted b,t' Z/Je L">'eJJate aJJd How:e of .Represe.TJZazires of t!Je P!JilippiJJes i.tJ {OJJgress as.~embled � SECT ION. 1. AH bonds. certificate~ and other evidences of indebtedness to be issued by the President of the Philippines under the provisions of Republic Act Numbered .Two Hundred Sixty -Six . entitled 'An Act appropriating ~uch sums as may fro111 time to time be released by the Central Bank - representing excess monetary reserves. and authorizing the President of the Philippines to issue bonds. certificates or other evidences of indebtedness covering such amounts ." for the purpose of economic rehabilitation and development , and the interest payable thereon . shall be exempt from taxation or assessment , whether national. provincial oi� municipaL SEC. 2. This Act shall take effect upon its approvaL Approved . August 3 .I, J950 Respondent on the other hand contends that the a mount of P2 .668J36 .05 invested in government stocks and bonds are not exempt from taxation for purposes of the estate tax . The phrase exempt from taxation � as provided in ~ect i on 1 of RA . 360 refers to lf.S. veterans pensions received by the beneficiary considered as property not sub ject to taxation . Jt does not extend to the tax on the transfer of property to the heirs by reason of the death of the beneficiary. Thus. the exemption does not co-v. .er exemption _: � from the estate tax. While it is true that Repubhc Act No. 360 provides for the e:xemption from taxatjon benefjts derived bv beneficiaries 3 ~ ) �- 'f

DECISION - CT A CASE NO. 4381 Page 14 residing in the Philippines under laws of the United States administered by the U.S. Veterans Administration the law further . - provides that "such provisions shall not attach to claims of -the United States arising under such Jaws nor shalJ the exemption herein contained as to taxation extend to any propertv purchased in oart or whoJJy out of such payments". In the case at bar, the pensions received by the deceased from the l l.S. Veterans Administration were invested by PNB in stocks and bonds. The nature of the benefits received by the veteran (Pedro l was converted into stocks and bonds. These funds were used to purchase shares of stocks and bonds by the legal guardian of the decedent. In such a situation , the exemption does not extend to the property purchased using as payments therefor proceeds from such pension . Petitioner 's claim that investments tn tax-exempt government bonds extended the exemption to the estate tax pursuant to Republic Act No. 566. We disagree with petitioner. The value of tax -exempt bonds and other tax-exempt obligations is �ncludihle in the gross estate and su_bj~ct to estate tax regardless of their i1 come tax-exempt status. /Nolledo, Bar .KevieJVer in Ta.ration,JOtb Ed.. (/990), p_ 4'4'7; citing Greiner v. LeJVelJ.,vn, 23 US 384'./ The estate tax is an excise tax or a tax on the pr �v�lege to transfer propert) upon one 's death. It is. howeve r. based on the net estate of the decedent in / 3 '/u / I

DECISlON - CT A CASE NO. 4381 Page 15 accordance with !he graduated rates provided by Section 77 of the National Internal Revenue Code . The tax -ex empt status of bonds. certificates of indebtedness issued by the President and the interests payable thereon refers to the tax on the property and not a tax on the privilege or right to t!"ansmit said property nccasion~d by death. Deductions from Gross Estate: In the case of a citizen-resident of the PhiHpplnes. like the decedent in this case. Section 7q of the National Internal Revenue Code enumerates the items deductible from the gross estate. In the case at bar, the revenue examiner � allowed as a deduction from the gross estate tJ1e funeral expense of PSO .OOO .OO and the Commission to Trustee IPNBl in the amount of Pl8 .335.q3 . Petitioner opposed and alleged that if the refund of P J.527.70n _q8 cannot be had then at the least the amount of P840 .202 .06 should be refunded to the heirs of the decedent after taking into consideration the deductible items enumerated in the petition for review . \V'e shall discuss each item of deduction m the order of preference as itemized hy petitioner. I

DECISION - CT A CASE NO. 4381 Page 16 1. Funeral expenses of P'iO,OOO .OO . There is no dispute with respect to the funeral expenses of P50 .000 .00 . In fact , respondents examiner allowed this item as a deduction to the gross estate. 2. Notarial fee for the document of Extra-judicial Settlement [Exh. l -21 of PG0.753 .00. Respondent maintains that only judicial expenses of the testamentary or intestate proceedings are allowed as a deduction to the gross estate. The amount of P60,753.00 is quite extraordinary for a mere notarial fee. This Court adopts the view under American-furisprudence that expenses incurred in the extrajudicial settlement of the estate should he allowed as �a deduction from the gross estate. "There is no requirement of formal administration. It is sufficient that the expense be a necessary contribution toward the settlement of the estate." /3-1 Am. Jur. 2d, p. 765; Ho//edo. Bar .KevieJVer in Taration. lOth Ed. (1990}. p. -181./ Petitioner presented as evidence the Contract of Legal Services, dated March 28, 1988, signed by both counsel and petitioner for the notar izat ion of the Extra -judicial Settlement Agreement between the heirs of the decedent. !Exh. I� 2. p. 36, CT A record.! "It i~ suffident for deductions hat the expenses be actually and necessar ily incurred. Payment is not a precondition but the amount of the e ~pense must he ascert inable." /supra./ 3 8CJ .........r.

DECISION - CT A CASE �o. 438 1 Page 17 Con~idering the v a!ue of the gro~s estat e of the decedent . We find the attorney 's fee of P60.7) 3.00 qu ite reasonable. This expense was incurred primarily to settle the e~tate or - the decedent. Therefore . the not ari al fee of P60,7 53.0 0 incurred for the Extra - judicia! Settlem ent Agreement shoul d be allowed as a deduction from the gro~~ estate. 3. Publication co~t of Ex tra - judicial Settlem ent of P600 .00 . The Court shall be prudent in allowing expenses incurred for the extra -judicial settlement of the intestate estate of the deceased. We shall proceed with caution. While it is true that the Notice of Extra -ju dicial Se ttle ment Agreement was published __ in the Dumagu ete Star Infor mer in three (3) consecutive issues on March 30. April 6 and 13. 198 8 !Exh. II We. however. regret to say that the official receipt show ing the cost incurred for its publication was neve r pre sented in ev idence by petitioner. Hence. this amount cannot be allow ed as a deduction for failure of petitioner to pre sent proof of pay ment. 4. In~urance prem ium on the Surety required by PNR [E.x hs . J and K] in the amount of P~9.J 14.40 ; and 5. Premium on Ad mir~i~ t ratri~ Bo 1d on Special Proceeding No. 2399 !Ex h. Ll in the amount of P l n000 00 .

DECISION - CT A CASE NO. 4381 Page 18 Ite m No. 4 refer ~ to the amount of premium paid by the petitioner in order to po~t the required bond [or, the Extra- judicial Settlement Agree ment. Item No. 5 refers to the fees incurred for the legal service~ of counsel who acted as a surety for the petitioner in the Special Proceedings fi led in Court. The Supreme Court ha~ ruled that "expenses or premiums paid or incurred by an executor or administrator to procure a �bond is not a proper cha �ge against the estate." /Estate of the dece11sed Fruto Santos. Macario Su1it v. Faust// Santos et. 111, 56 Phil 626S; and In the matter of the test11te estate of the late DA. Marg11rita D11vid. Carlos Moran Sison v. Narcis11 F. Teodoro, 100 Phil 1055./ "Thus. it was there stated that the po~ition of an executor or administrator is one of trust : that it is proper for the law to safeguard the e~tates of deceased per~ons by requiring the administrator to give a suitable bond, and th at the ability to give this bond i~ in the nature of a qualification for the office." /supra./ Therefore, the P59.314 .40 premium paid by PNB to Stronghold Insurance Company, Incorporated covered by Surety Bond No. 018217 IExh. jl is not an allmvable deduction to the gross estate of the decedent. In the same manner. the obJigation of petit ioner to pay the amount of P 10.000 .00 . repre~enting the fees of counsel acting a ~ her ~urety in the Special Proceeding is un allowable as a deduction. 08 � t) 1...

DECISION- CT A CA.SE NO. 4381 Page 1g 6. No tarial f~e of Suretv ~ Acknmvledgement nf the Hond in.Jh~ .a.mQ._Lt..nL�!(J!J.OQO_,QQ_. The notarial fee uf P 1.000 .00 is an incidental expense for the procu remen t of the bond . The sa me cannot be allo,ved as a deduction from the gross estate . If the premiums on the bonds paid by the administr-ator is not a proper charge against the estate then with more reason the incidental and necessary expense covering notarial fees for the acknowledgement of the suretv bond should not also be allo\ved as a deduction. This expense shall be borne bv the administrator in her personal capacity. 7. Attorney 's fees in Special Proceeding No. 12 54 fur Guardianship IExh. t,l in _Lb._g_ll_m_ounJ 52LJ '')JJ. QQfLO_Q. The attorneys fee~ of PSO .O OO .OO , \\�hich ~- e re a~ready incurred rut nnt yet raid. refers tn the gunrd ~:msh i r rroceeding filed hy P' 1B. as guard.:J!l over the ward Pe ':.1ro Pajcmar . docLeted as Specia Proceeding ~.Jo. 1~54 in thr ETC tBranch X~~ Xlt of Dumaguet e City. P ~m ~ub!:l!tted tn sa~ court the final statement of accounting fr om 5eptet 1ber J. l 0 ~7 to !\:la rch 31 , 198~ . with nc objections nn tile rart nf th e l 1.S . Veter ns Admini~tratinn.

DECI~lO N- CTA CASE NO. 4381 Page 20 showing a cash balance and total value of the ward �s estate. as follows: lpp.45 -46, BIR record .! Cash balance in estate p 314.452 .50 Time deposit f\1oney market 200 .000 .00 House & Lot 2.450 .000 .00 Toyota Tamaraw 45,739.59 Total 27.500.00 p 3,037,672.09 The �guardianship proceeding had been terminated upon delivery of the residuary estate to the heirs entitled thereto. Thereafter . PNB \\'as discharged of any further responsibility. Attorney 's fees in order to be deductible from the gross estate must be essential to the collection of assets. payment of debts or the distribution of the property to the persons entitled to it. The se rvices for v.'hich the fees are charged must relate to the proper settlement of the estate. /34 Am. Jur. 2d 767./ In this case. the guardianship proceeding was necessary for the distr ibution of the property of the late Pedro Pajonar to his rightful heirs. Guard ians for incompetents or minors have no separate taxab le entity apart from the ward; accordingly, the minor or incompetent is the taxpayer. Whether a payment by the guardian or committee is deductible depends on whether it is a busine ss expense to the ward. /6 Mertens 3.57, see also Mary n. Moore Holifield. 7 BTA 1302../

DECL' ON - CT A CASE '0. 4381 Page 21 PNB was appomted as guard1an over the assets ot the late Pedro Pajonar who, even at the time of his death, was incompetent by reason of insanity. The expenses incurred in the guardianship proceedmg was but a necessary expense in the settlement nf the decedent"s estate. Therefore , the attorneys fee incurred tn the guardianship proceedings amounting to P)O ,OOO .OO 1. a reasonable and ne e sary busmess expense dedu ctible from the gross estate of th ctece en .. 8. Attorncysfeestn.'p ctal Prm:t;eding No. 23 J9 lor Letter of Ad mini t �attun IE h. 0 .] in the .4_1ll_OU!L.i!LP._:s. L?{i0 . 8Q~ Pt; ilioner pre en eJ �,r mar king E �hib it whH.:h is the Contract uf Legal !:\1;!1' ices sig1 e<.l by petitiot e and h r cu un el uu Mav 18, 1988 . She, however , failed lu offer lhis e �J i il in her 'Written fur mal uffe l f eviuence. Thu �. lhe ou �l eAcluJeJ sai exhibit as parl of elitiuner' evidence e t;J1 thuugh il f Jr ms pan of the te stin un of peti imler witness. fCT A Resolution ualed Jui � 16, 1991. p . 90-91, CTA rei,;urd .l St;ctior 3 ' of Rule 132 of U e Reviseu Rules u� Cwrt is dear un lhis maLlcr . We qllule . "SEC 34. Offer of evidence. - The c )ur t shall consider no evidence 'i 'hich has not heen formally ortered. The purpose for which the eviliem:e is ol'l. ered must be specuted ." u'2 0\ \ 0-�

DECISION- CT A CASE NO. 4381 Page 22 No evidentiary worth can be attached to any evidence not formally offered in Court. /Yera.n v Court of Appellls, 157 SCJlA -138~� People v. YlllapllD11, 16I SCNA 72,� People v. Carino. 165 SCllA 66-1../ For failure to offer Exhibit 0 the Court cannot consider the same as part of petitionel"s evidence. Hence , the anorney �s fee of P461,760 .80 cannot be deducted from the gross estate of the decedent 9. Filing Fees [Exhs. P. Qand Rl of P6.374.88 . 10. Publication of Order, june 1, 8 & 15, 1988 issues of the Dumaguete Informer fExh. Sl for P600 .00. 11. Publication of Notice to Creditors Sept. 7 , 14 & 21 , 19 8 issues of the Dumaguete Informer [Exh. Tl for P600 .00 . 12. Certification fee for publicalion on the bulletin boarJ of the Municipal Bldg. of Siaton IExh. Ul in the amount of P2 .00. 13. Certification fee fo r publication in the Capitol [Exh . VI in the amount of ps .oo. 14. Certification fee for publication of Notice to Creditors [Exh. WI in the amount of PS .OO . All the expenses above -mentioned from Item Nos. 9. 11 to 14 were incurred and paid in connection with the settlement of the estate. Therefore. these expenses should be allowed as a valid deduction. Petitioner presented and offered the official ') , I - uOlJ

DECISION- CT A CASE NO. 4381 . Page 23 receipts corresponding to such payments except for Item No. 10 IExh . Sl. The Affidavit of the editor !Exh. S} merely stated that the Order of the court in Special Proceeding No. 2399 was published in the Dumaguete Star Informer for three (3) consecutive issues on june 1, 8 and J S, 1988. The cost of publication was not mentionect in said Affidavit. Petitioner did not present the official receipt pertaining to the payment of 600 .00 , as cost of publication. It would b.e worthy to point that the same newspaper had issued a receipt dated ~eptember 2, 1988 fo r the publication of the Notice to Creditors for -three UJ consecutive issues on September 7, 14 and 21, 1988 IExh. TJ which this Court approved and allowed as a deductible expense from the estate. Thus, the mere affidavit of the editor is not sufficient to show proof of payment since it was never mentioned in said affidavit the sum paid for publication. Therefore, with respect to the above-listed items only Item No. 10 lEx h. Sl should be disallowed as an expense for failure of petitioner to substantiate the same . 15. Attorney 's fees for the Protest to th~ Assessme nt and Recovery of ex ess Lax [Ex! . XI in the amount of P600.000 .00 . Again thru inadvertence petitioner failed to present and offer Exhibit X. the Contract for Legal Services of petitioner's counsel to institute and prosecute the present petition fur review claiming for the refund of erroneously paid estate tax. Said A-v� I

DEClSlOt - CT A CASE NO. 438 1 Page 24 document was never formally offered as evidence in the hearing and therefore cannot t>e con~ldered as e ide11ce for the petitioner. [see Sec. 34 , Ru le 132 . Revise d Rule of Court .] Any evidence which a party desires to sub mn to the con ideration of the Court must be tormally offered by him . /De Castro v. Court of Appeals. et. al., 75 Pbil. 82 -1./ E hibi t X not having been formally offered cannot, therefore , be considered by the Court it appearing that the same documentar exhibit has already been rejected in Our Resolution �dated july 16, 1991. Thus, the attorney 's fees of P600 ,000 .00 cannot be deducted from the gross estate of the decedent. To recapitulate, the Court made its own compu tation of the taxable net estate or the late Pedro P. Pajonar, as follows : Estate of Pedro P. Paionar Lagtangon, Siato , Negros Qrjentat Die d janu ry I 0, 1988 I. Real f.Jrt1pertte s p 102 .9665 9 Ir. Pt!r snnal Prup ertie~ : J . f{efrigerator P 7. 500.00 3.090 .00 b. WaJl Clock, Esso Gasul, I ) ,700 .0(! Tables and Chairs 7.400 .00 c. Beddjngs , Stereo Cassette, 27.500 .00 T 1� Betamax d. b:araoke. ElecLric Ir 111, Fan, Transformer and Curn~;r Se t e. Toyota Tamaraw 61,190.00

DECISION- CT A CASE NO. 4381 Page 25 Additional Personal Properties: f. Time Deposit - PNB p 20 ,000 .00 g. Stocks and Bonds - P B h. Money Market 201 ,232.37 i. Cash Deposit 2,3 00 ,000 .00 ___ll.1.1Q_.L_al __2 "BJ..5.334.2.Q. GROSS ESTATE P2 ,979 ,490.79 Less: Deductions: a. Funeral expenses p 50 ,000 00 b. Commission t C1Trustee (PNBI 18.33).93 c. Notarial FE;e fur the Extra - judicial Settlement 60.753 .00 d. Attorney 's Fees in Special Procee ding No. 1254 for Guardianship 50 .000 .00 e. Filing Fees in Special Proceeding No. 2399 6, 74.8 f. Publication of Notice to Credilors Seplember 7, 14 cUJ 21 , 1988 issues of the Dumaguete Star Informer 600 .00 g. Certification fee for pubi icatwn nn the Builet1n Hnard of the Ivlunicipa Buiiuing of Siulon , I E;gros riental 2.00 h. Cenif' cation fee fo � publication in t11e Ca itol 5.00 i. Certification fee for pu blication of Notice to Cre dit ors _ __.J,s_;:,;n'-"'-o 18( ,07 5.8 1 NET ESTATE P2.793 4 I 4.<J8 Estate Tax Due Pl .277 762 3 CJ Less: Eslate Tax Paid: p 2.557.00 CB Confirmauun Receipt �os. _L}l7 790 .98 1.230..347.98 B 14268064 B 15517625 0' J b'._,

DECISIO � - CTA CASE NO. 438 1 Page 26 AMOUNT REFUNDABLE WHEREFORE, responde nt Commissioner of Internal Reve nue ts hereby orl1ered to refund in ia or of petitioner Josefina P. fJ<1jonar , as d ministnHrix of the Estate of Pedro P. 'f.laJonar, the amount of P 2_2,_85.5.) , repre ming erroneously patd estal..:. ta tor the ye � r 1988 . n cost. of sutt . Quezon Cil y, Mt!tro Mantia , May 6, 119 3. WE CONCUR: Q~a~ ERNESTO D ACOST A Pre iliing ju~ge ~ p<-JU) I RAMON 0 . DE VF~A Assoctate Judge I

_....._. DEC IS ION - CT A :ASE NO. 4381 Page 27 CERTIFI CAT ION J hereby certify that this decision was reached after due consultation between the members of the Court or Tax .L\ppeats in accordance wit h Section 13 . Arttcle VI II of the .on slit ution. ~~Q.. Q~ ER H5"0 0 . ACOSTA residing Juu~e Court >f Tax Ap~,eal s