Interpretation and/or Application of Sec. 29 and 88 (Tax Code)

November 14, 1958 BIR RULING NO. 673-58 Messrs. Balsos & Associates 64 West Pampanga Manila Gentlemen : In reply to your letter requesting comment on certain points regarding the interpretation and/or application of Sections 29 and 88 of the Tax Code, I have the honor to inform you as follows: The aforesaid sections bear no relation to each other for purposes of taxation as the former applies to income tax while the latter to estate and inheritance taxes both of which are separate and distinct internal revenue taxes treated under separate titles of the Tax Code. For purposes of the income tax, the proceeds of life insurance policies are not to be included in the gross income of the beneficiaries thereof, except, that where the said proceeds are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in the gross income. Accordingly, your client who is the beneficiary of the life insurance policy taken out by her deceased sister need not declare in her income tax return the proceeds of said insurance received by her except the interest payments thereon, if there is any. For purposes of the estate and inheritance taxes, where the decedent, during his lifetime, took out a life insurance policy on his own life designating therein a beneficiary and the power to revoke or change the beneficiary having been reserved unto himself, the proceeds thereof shall be included in his gross estate regardless of whether or not the said power or revocation was exercised by him during his lifetime. Accordingly, the proceeds of the life insurance policy of the decedent which your client received in her capacity as beneficiary, must be included in the gross estate of her deceased sister, even if, as you have stated, your client was the only beneficiary designated in the said policy. The aforesaid proceeds must, therefore, be declared in the estate and inheritance tax return of the decedent to be filed by the executor, administrator, or heirs of the deceased. The estate tax shall be based on the value of the net estate of your client's deceased sister, said tax to be computed in accordance with the rates prescribed in Section 85 of the Tax Code. The value of the decedent's net estate shall be determined in accordance with the provisions of Sections 88 and 89 of the same Code. The inheritance tax shall be based on the value of the individual share of each heir or beneficiary in the net estate tax, in accordance with rates prescribed in Section 86 of the said Code. cdtech Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue