BIR Ruling

December 6, 1996 MEMORANDUM FOR: The Commissioner This refers to the request for reconsideration filed by the ESTATE OF ROSEMARIE T. DE TODA on our decision dated June 7, 1996 denying the protest filed against the deficiency estate tax assessment issued on the said estate involving the amount of P147,931,995.20 covered by Assessment Notice No. FAS-E-91-91-002313 dated July 18, 1991. cdtech In our aforesaid decision, we cited two (2) grounds as our basis in denying said protest to wit: 1. That the assessment has become final and unappealable due to non-compliance with the procedural requirements under Revenue Regulations No. 12-85 and Section 229 of the Tax Code; 2. That there is no indubitable evidence of a bonafide indebtedness. In line with existing jurisprudence on the matter that the rules of procedure are not to be applied in a very rigid and technical sense, but must be used to help secure and not override substantial justice (Gregorio vs. Court of Appeals 72 SCRA 120), so as to afford every party-litigant the amplest opportunity for the proper and just disposition of his cause, freed from the constraints of technicalities (A-One Feeds Incorporated vs. Court of Appeals, 100 SCRA 590), or so as not to deprive a party of the right to appeal (National Waterworks and Sewerage Authority vs. Municipality of Libmanan, 97 SCRA 138) and where the interests of justice would be served by a policy of liberality, this Office has finally determined, after a careful review of the records of the case and the evidences submitted in the light of the above cited jurisprudence, that the protest of the estate, filed on August 23, 1991, was actually filed within the thirty (30) day period. Likewise, the protest itself, premised on the ground that "the legitimate claims against the estate were not considered in computing the above", is a substantial compliance of Revenue Regulations No. 12-85 and Section 229 of the Tax Code. Thus, for appeal purposes, it may be considered as a valid protest to the deficiency estate tax assessment. Accordingly, this Office may give due course to this request for reconsideration. The main thrust of estate's argument is that the indebtedness was a legitimate loan as it was incurred by the deceased Rosemarie T. de Toda during her lifetime and remains unpaid at the time of her death as it was supported by a substantial documentary evidence which actually consists of a legal document entitled "Wrapped-Up Liability With Special Power of Attorney" shown to have been executed on December 20, 1985 under which the deceased during her lifetime acknowledged her indebtedness to a group of creditors led by Mr. George Tan wherein the latter was authorized to sell, assign, transfer, mortgage, pledge or otherwise dispose of any of the properties of the decedent mentioned in the said agreement and applied the proceeds thereof to any outstanding balance Rosemarie T. de Toda may have on the above mentioned liability as of December 20, 1990. The issue therefore is whether the decedent and/or the estate is liable to pay the obligation evidenced by a promissory note which was executed more than five (5) years before her death. After a careful review, examination and evaluation of the evidences submitted, this Office has finally come up with the conclusion that the indebtedness do really exist considering that it was substantially documented. There is likewise no iota of doubt that the decedent is liable on the promissory note evidencing the indebtedness. On this score, it must be emphasized that this indebtedness was the subject of Civil Case No. 92-12628, for Specific Performance, filed by George R. Tan against Rose Marie Toda-Delgado and Benigno T. Toda III, as heirs of the late Rosemarie T. de Toda. On September 14, 1992, the Regional Trial Court, Branch 99, Quezon City, handed a decision, the dispositive portion of which reads as follows: WHEREFORE, premises considered, judgment is hereby rendered ordering the defendants: aisadc a) To deliver to the plaintiff the new transfer certificates of title of the parcels of land and stock certificates mentioned in paragraph 4 of the complaint within thirty (30) days from finality of this decision and to execute within the same period in favor of the plaintiff the corresponding deeds of mortgage and/or pledge on these properties as security for the payment of their deceased mother's indebtedness to the plaintiff; b) To pay plaintiff the amount of P10,000.00 as reasonable attorneys fees; c) To pay the costs of suit. SO ORDERED. Based on the aforequoted decision of the Regional Trial Court, Branch 99, Quezon City, this Division believes on the veracity and legitimacy of the indebtedness which is now claimed as a deduction from the gross estate of Rosemarie T. de Toda for it is somehow absurd to think that a Court of competent jurisdiction will be made a party to a sham transaction, if ever we have to consider this indebtedness as one that is spurious and fictitious. However, the legal document evidencing the indebtedness thereof authorizing the creditor to dispose of the assets/properties of the decedent to be applied to her liability as of December 20, 1990, we believe, also expired upon the death of the decedent. Hence, the interest that accrued on the said indebtedness shall be computed up to December 20, 1990 only as the said date was expressly stated in the said agreement. The judicial expense of the estate was likewise adjusted to P4,503,592.00 as per amended return. Reinvestigation shows that these expenses were also fully documented. Thus, based on the foregoing, this Office has finally ascertained that the estate is still liable in the amount of P98,682,490.20 as deficiency estate tax computed as follows: Gross Estate P156,331,597.00 Less: Deductions allowed: Claims against the estate P78,230,460.00 Funeral expense 50,000.00 Judicial expense 4,503,592.00 82,784,052.00 NET TAXABLE ESTATE 73,547,545.00 ESTATE TAX DUE 43,721,977.00 Less: Estate tax already paid 6,128,647.00 Balance P37,593,330.00 25% Surcharge 9,398,332.00 Sub-total P46,991,662.00 20% Interest (from 6-2-91 to 12-2-96) 51,690,828.20 TOTAL AMOUNT DUE AND COLLECTIBLE P98,682,490.20 ============ As to the request for the lifting of the tax lien on its two (2) properties located in Makati and the eventual sale thereof, this Office recommends the following: The tax lien on the two (2) lots covered by TCT Nos. 175244 and 175245, situated at Banaba Road, Forbes Park, Makati City may be lifted to allow the sale thereof with the condition that the proceeds of the sale shall be applied to the deficiency estate tax of Rosemarie T. de Toda as recomputed in order that the same may be closed and terminated. Moreover, the deed of sale of the said properties must be with the tacit approval of the Commissioner of Internal Revenue. The Commissioner shall likewise be advised of the payment of the indebtedness claimed as deductions against the gross estate in order for the government to collect the income tax due on the income portion of the payment. For this purpose, the income tax due on the said income portion of the payment shall be withheld by the estate/heirs of the estate as withholding agent and be directly remitted to the BIR and/or be directly liable to it. Upon full payment of the amount of P98,682,490.20 representing the final amount of the estate tax liability of the estate of Rosemarie T. de Toda, the tax lien annotated on all the remaining properties of the estate subject to tax lien will be lifted and cancelled. A final clearance shall likewise be issued by the Bureau and the investigation of the estate shall be considered closed and terminated. Respectfully submitted: (SGD.) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) ALICIA P. CLEMENO Assistant Commissioner (Legal Service) Recommendation-Approved: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue