BIR Ruling No. 022-62

January 17, 1962 BIR RULING NO. 022-62 MEMORANDUM for The Chief, Income Tax Division (Thru the Revenue Operations Head [Assessment] B.I.R., Manila This has reference to the letter of Mrs. Natividad C. Catanjal dated October 21, 1959, requesting for recomputation of the penalties, surcharges and interests imposed incident to late payment of the estate and inheritance taxes assessed against her as one of the heirs of the late ROBERTA CRISOLOGO. The records show that with the exception of Mrs. Natividad C. Catanjal, Jesus Crisologo and Mena Crisologo, all the other persons who received a share in the estate left by the deceased Roberta Crisologo, have paid the estate and inheritance taxes corresponding their respective shares. It may be mentioned, at this juncture, that the deceased died testate on July 6, 1954 and testate proceedings were instituted within six months after death. Estate and inheritance tax return was filed and received by this Office on December 12, 1956. Based on the return filed for the estate, estate and inheritance taxes were assessed in the amounts of P1,593.92 and P3,023.74, respectively, or a total of P4,617.66. These sums were paid in 1957. In the meantime, an investigation was conducted to determine the fair market value of the properties left by the deceased, which were located in Ilocos Sur, Abra and the City of Manila, with the aim in view of assessing and collecting the correct transfer taxes due from the estate. After the investigation was terminated, assessment notices for deficiency estate and inheritance taxes were issued. These assessments were contested by Mrs. Catanjal. Several reinvestigations were undertaken to determine the correct estate and inheritance taxes and final assessment notices . . . were issued on June 11, 1959 with the request that they paid not later that July 15, 1959. Before the final assessments were issued on June 11, 1959, some of the heirs who participated or shared in the estate left by the deceased, Roberta Crisologo, paid the estate tax due on their proportionate share in the estate. Mrs. Natividad C. Catanjal, in her letter dated October 21, 1959 questions and seeks for a recomputation of the surcharges, interests and compromise penalties imposed incident to late filing and late payment of the taxes due. The following opinion, therefore, is rendered in connection with the questions posed by her letter: This Office agrees with Mrs. Catanjal, that the final assessments on the deficiency estate and inheritance taxes were made and issued only on June 11, 1959, in line with the decision of the Court of Tax Appeals in the unappealed case of "BEN CHUY & LEE SIN vs. COLLECTOR OF INTERNAL REVENUE", Civil Case No. 12823, prom. on July 16, 1958. Consequently, the payment made by certain heirs on the deficiency estate tax before the issuance of the final assessments on June 11, 1959, should not be subjected to the 5% surcharge provided under section 101(c) of the Tax Code, which states: "(c) Surcharge . If any amount of the taxes included in the notice and demand from the Collector of Internal Revenue is not paid in full within thirty days after notice and demand , there shall be collected in addition to the interest prescribed herein and in sections ninety-nine and one hundred and as part of the taxes a surcharge of five per centum of the unpaid amount ." (Emphasis supplied). The decease in the valuation of the estate as finally determined by the reinvestigation and before the issuance of the final assessments should benefit the heirs who paid the estate tax on their proportionate share of the inheritance. It may also be mentioned, in this connection, that some of the heirs who paid the taxes due on their proportionate share of the inheritance on January 15, 1957, based on the provisional assessments dated December 17, 1956, were charged the 5% surcharge. (See "Authority to Accept Payment" attached to records). The imposition of the 5% surcharge on said payments was without the sanction of the law as quoted above. Proper rectification of the error committed is in order. Referring to the question of the imposition of the 1% monthly interest, for failure to pay the taxes on their due dates, it is the opinion of this Office based on the provisions of law involved, that said interest is legally due and may not be waived. The pertinent provisions involved may be found in section 95(a)(1) and (2) and 101(a)(1), which are quoted below, as follows: "SEC. 95(a) . . . "(1) General rule . The estate and inheritance taxes imposed by sections eighty-five and eighty-six shall be due and payable within nine months and twelve months , respectively, after the decedent's death and shall be paid by the executor, administrator, or the heirs, as the case may be, to the Collector of Internal Revenue or to the treasurer of the province, city or municipality in which the decedent's was domiciled at the time of his death." (Emphasis supplied). "(2) Exception . In case judicial testamentary or intestate proceedings shall be instituted for the settlement of the decedent's state prior to the expiration of six months after his death, the estate and inheritance taxes shall be due and payable within twenty-one months and twenty-four months , respectively, after the decedent's death." "SEC. 101(a) . . . "(1) Payment not extended . Where the amount of the taxes imposed by this Chapter, or any part of such amount is not paid on the due date of the taxes, there shall be collected as a part of the taxes, interest upon such unpaid amount of the rate of one per centum a month from the due date until it is paid ."(Emphasis supplied.) Under the aforequoted provisions of the law, and considering that settlement proceedings were instituted within six months from the death of the deceased, the estate tax should have been paid without interest on or before April 6, 1956; and the inheritance tax should have been paid on the aforementioned dates, the 1% monthly interest assessed against the heirs and upon the share of the estate received by Mrs. Catanjal from the date up to the time of full payment of the taxes assessed is in order. On the question of the interest on the deficiency finally determined as due, section 100 of the Tax Code, states: "SEC. 100. Interest on deficiency . Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the Collector of Internal Revenue, and shall be collected as a part of the tax, at the rate of six per centum from the due date of the tax to the date the deficiency is assessed ." (Emphasis supplied). Under this provision of the law, the 6% interest per annum or 1/2% interest per month due on the deficiency estate and inheritance taxes finally determined should be reckoned from April 7, 1956 to June 11, 1959, in the case of inheritance tax, from July 7, 1956 to June 11, 1959, when the final assessments were issued. If the deficiency taxes, as finally assessed on June 11, 1959, were not paid within thirty days from the issuance of the assessment notices, then the 5% surcharge and the 1% interest accrue until the full amount is paid. Your computation of the corresponding interest should, therefore, be reviewed thoroughly to conform with the aforecited opinion. Finally, with respect to the imposition of the penalties, the Court of Tax Appeals in its decision in the case of "Ben L. Chuy & Lee Sin vs. The Collector of Internal Revenue", (cited some where in this opinion) ruled as follows: "While it is true that the Collector (now Commissioner) of Internal Revenue is empowered to compromise any civil or other case arising under the Revenue Code by virtue of Section 309 thereof, such power merely authorizes him to enter into a compromise with a taxpayer. The power to compromise conferred upon the defendant has never been intended to vest in him the absolute power to fix any amount in settlement of a supposes criminal violation without the consent of the taxpayer concerned. That would not be an exercise of the power to compromise; it would be an exercise of the power to impose fines or penalties, which is not permitted under existing law. (See Murphy v. Trinidad 44 Phil. 649; University of Sto. Tomas v. Collector of Internal Revenue, C.T.A. Case No. 10, Sept. 10, 1956.) If dependent insists on imposing or exacting fines or penalties in the guise of compromise, the might expose himself to the charge of usurpation of the judicial function conferred upon courts of general jurisdiction." xxx xxx xxx "As stated in Catalino Ignacio v. Collector of Internal Revenue, C.T.A. Case No. 170, March 24, 1958: "A compromise agreement entered into otherwise than by a complete understanding and voluntary acceptance of the proposed settlement would be nullity." "In fine, we are of the opinion that the Collector of Internal Revenue (now Commissioner) has no power to impose fines or penalties under the National Internal Revenue Code, whether the fines or penalties be administrative or criminal." In view of the foregoing consideration, the request contained in the letter of Mrs. Catanjal should be given due course, and a review of the computation should be made in accordance with the afore-quoted opinion. The entire docket of the case is, therefore, returned to you for proper action. Please be guided accordingly. MELECIO R. DOMINGO Commissioner of Internal Revenue