Dizon v. Court of Appeals

FIRST DIVISION [CA-G.R. SP No. 46947. April 30, 1999.] RAFAEL ARSENIO S. DIZON as Administrator of the ESTATE OF JOSE P. FERNANDEZ , petitioner , vs . COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N BUZON , J p : This is a petition for review of the decision of the Court of Tax Appeals ordering petitioner and/or the heirs of Jose P. Fernandez to pay to respondent the amount of P37,419,493.71 plus 20% interest from due date of its payment until full payment thereof as estate tax liability of the estate of Jose P. Fernandez, who died on November 7, 1987. LLphil On April 17, 1990, an estate tax return was filed for and in behalf of the estate of Jose P. Fernandez with the Bureau of Internal Revenue (BIR) Regional Office in San Pablo City showing NIL estate tax liability, composed as follows: "COMPUTATION OF TAX Conjugal Real Property (Sch. 1) P10,855,020.00 Conjugal Personal Property (Sch. 2) 3,460,591.34 Taxable Transfer (Sch. 3) Gross Conjugal estate 14,315,611.34 Less: Deductions (Sch. 4) 187,822,576.06 Net Conjugal Estate NIL Less: Share of Surviving Spouse NIL Net share in Conjugal Estate NIL x x x Net Taxable Estate NIL Estate Tax Due NIL " ============ On April 27, 1990, Certification Nos. 2052 and 2053 were issued by BIR Regional Director Osmundo G. Umali stating that the taxes due on the transfer of the real and personal properties of the late Jose P. Fernandez had been paid and the properties may be transferred to the heirs of the deceased. On November 26, 1991, Mr. Themistocles Montalban, Assistant Commissioner for Collection of the BIR National Office, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269 demanding the payment of the amount of P66,973,985.40 as deficiency estate tax. The request for reconsideration of the assessment was denied by the Commissioner of the BIR. An appeal was then filed by petitioner with the Court of Tax Appeals, which rendered the decision subject of the instant petition. Petitioner assigns the following errors allegedly committed by the Court of Tax Appeals, to wit: "1. Respondent Court erred in relying solely on clearly inadmissible evidence which were not formally offered, identified and were presented by an incompetent witness contrary to Rule 132, Sec. 35 of the Rules of Court. 2. Respondent Court erred in considering the estate tax return filed by the respondent BIR despite the fact that clear and convincing evidence were presented to show that the petitioner had filed its own return previously. 3. Respondent Court erred in not considering the valid claims against the estate. 4. Respondent Court erred in upholding the double imputation/consideration by respondent Commissioner of the value of the properties sold, by both recognizing its market value and the proceeds of their sale which were deposited with the estate's depository bank and used to pay its debts. 5. Respondent Court erred in not considering as lawful deductions the legitimate obligations of the estate and recognizing merely what it had paid in settlement thereof long after the estate tax return had been filed and paid." The petition is not impressed with merit. Although the documents identified by the witness of the BIR were not formally offered, respondent court committed no error in considering the same as evidence for the BIR. As pointed out by respondent court: "Although the above-mentioned documents were not formally offered as evidence for respondent, considering that respondent has been declared to have waived the presentation thereof during the hearing on March 20, 1996, still they could be considered as evidence for respondent since they were properly identified during the presentation of respondent's witness, whose testimony was duly recorded as part of the records of this case. Besides, the documents marked as respondent's exhibits formed part of the BIR records of the case. This was the ruling laid down in the case of Vda. Oate vs. Court of Appeals and Taguba, G.R. No. 116149, promulgated on November 23, 1995, 250 SCRA 283, where the Supreme Court, citing the cases of People vs. Napat-a and People vs. Mate, 103 SCRA 484 (1981), relaxed the rule on evidence to be considered that should be formally offered and allowed evidence not formally offered to be admitted and considered by the trial court provided the following requirements are present, viz: first, the same must have been duly identified by testimony duly recorded and second, the same must have been incorporated in the records of the case." Moreover, Alberto Enriquez, BIR's witness, was one of the revenue examiners who conducted the investigation regarding the liability of the estate of the late Jose P. Fernandez and, in the course of his testimony, he identified the documents forming part of the records submitted by the BIR to respondent court. The filing of an estate tax return with the BIR by petitioner's representative and the issuance of a BIR clearance did not deprive the Commissioner of the BIR of authority to re-examine or re-assess the return filed on behalf of the estate of the late Jose P. Fernandez. Thus, Section 16 of the 1993 National Internal Revenue Code provides: "SECTION 16. Power of the Commissioner to Make Assessments . (a) Examination of returns and determination of tax. After a return is filed as required under the provisions of this Code, the Commissioner shall examine it and assess the correct amount of the tax. The tax or deficiency tax so assessed shall be paid upon notice and demand from the Commissioner. . . . (b) Failure to submit required returns, statements, reports and other documents. When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. . . . (c) . . . (d) . . . (e) Authority of the Commissioner to prescribe real property values . The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax the value of real property shall be whichever is higher of: (1) The fair market value as determined by the Commissioner; Or (2) The fair market value as shown in the schedule of values of the Provincial and City Assessors. . . ." In denying some claims against the estate of the late Jose P. Fernandez, respondent court ratiocinated as follows: "To resolve the issue as to which of the two computation is right, the Court has to take the tedious task of analyzing individually the claims as declared by petitioner in his estate tax return. The claims were listed in Exhibit 'K-5' of petitioner (p. 177, BIR rec.), namely: 'Jose P. Fernandez-Decedent Claim Against the Estate Banque Indosuez P 96,578,118.00 State Investment House, Inc. 6,260,006.21 Equitable Banking Corporation 19,756,428.31 The Manila Banking Corporation 65,158,023.54 P187,772,576.06 Funeral Expenses 50,000.00 P187,822,576.06' ============ To prove the first claim, petitioner presented Exhibit 'E', which was the Claim filed against the estate by Atty. Rainer L. Madrid, as counsel for claimant Banque Indosuez, in the amount of the US$4,828,905.90. The total amount of P96,578,118.00 cannot be allowed as deduction. Pursuant to a Memorandum of Agreement (pp. 254-260, BIR rec.) executed on April 18, 1989 by Banque Indosuez, the heirs of Jose P. Fernandez and Fernandez Hermanos, Inc. (FHI), the bank agreed to accept the amount of P20,000,000.00 as full and final settlement of all its claims against the estate of Jose P. Fernandez. FHI agreed to advance the amount of P20,000,000.00, and this was fully complied with on June 15, 1989 as evidenced by a Deed of Assignment (pp. 251-253, BIR rec.) executed by Banque Indosuez and FHI. In effect therefore, there was a partial condonation of P76,578,118.00 (P96,578,118.00 20,000,000.00) in the estate's obligation to Banque Indosuez. Hence, such condoned amount is not deductible, but only the sum of P20,000,000 . 00 which was the amount actually paid to and accepted by Banque Indosuez, as full and final settlement of all its claims against the estate of Jose P. Fernandez. In one of its previous decisions, this Court held that: '. . . The 'claims against the estate' which the law allows as deduction from the gross estate are existing claims against the estate. An indebtedness that has been condoned is in legal effect no indebtedness at all. If there is no more indebtedness by reason of the condonation, there is no claim against the estate which may be allowed as deduction. Whether or not the condonation resulted in a taxable gift need here be decided. . . .' (Bocanegra, et al. vs. Collector of Internal Revenue C.T.A. Case No. 420, Oct. 12, 1959) As evidence of the claim of State Investment House, Inc. (SIHI), petitioner presented Exhibits 'H' to 'H-16' (pp. 200-216, BIR rec.) which referred to the computation of the claims of SIHI in the total amount of P6,280,006.21, and the Amended/Complaint filed with the RTC, Manila Branch VII, captioned as 'State Investment House, Inc. vs. Maritime Company Overseas, Inc. and/or Jose P. Fernandez,' and docketed as Civil Case No. 86-38599. This claim was also settled thru a Memorandum of Agreement dated May 30, 1989 (pp.188-189, BIR rec.) wherein parties agreed to settle the liability at a reduced amount of P2,200,000.00. That this amount was already paid is evidenced by Official Receipt No. 17025 A appearing on page 185, found in between pages 192 and 193 of the BIR records. Similar to the first claim, the second claim was also partly condoned and so, deductible only to the extent of P2,200,000 . 00 which was the amount actually paid by the estate. In proving the third claim of Equitable Banking Corporation (EBC) in the amount of P19,756,428.31, petitioner presented Exhibits 'D' to 'D-24' which was the claim filed by EBC against the estate of Jose P. Fernandez. Just like the first two claims, this claim was also settled thru a Memorandum of Agreement, dated June 6, 1989 (pp. 240-244, BIR rec.) wherein EBC agreed to accept the payment of the sum of P4,000,000 . 00 as full and final settlement of its claim. Details of payment of this amount are shown hereunder. Official Location Page Receipt No. Date Amount in BIR records 569258 6-7-89 P200,000.00 p. 232 569522 6-30-89 2,000,000.00 p. 239 575395 7-8-89 1,700,000.00 p. 237 575392 7-31-89 100,000.00 p. 234 TOTAL P4,000,000.00 =========== Again, as there was partial condonation in the estate's liability to EBC, the only amount of P4,000,000, will allowed as valid deduction for similar reason previously mentioned. The claim of Manila Banking Corp. (MBC) against the estate in the amount of P65,158,023.54 was not clearly established by petitioner through presentation of Exhibits 'F' to 'F-3' (pp. 194-197, BIR rec.). Exh. 'F' is the computation of MBC's claim. Exhs. 'F-1' and F-3' refer to the demand letter of MBC's counsel addressed to the administrator of the estate Jose P. Fernandez. This claim was disallowed in its totality by the respondent as there was no claim filed in Court (see respondent's remarks stated in worksheet, pp. 129 and 132, BIR rec.). The Court recognizes the disallowances of MBC's claim against the estate of Jose P. Fernandez as proper and legal. It is expressly provided under Section 1 of Rule 86, Rules of Court, that all money claims against the estate must be filed in court. Besides, in a letter, dated March 14, 1989 (Exh. 'G', Pet.; pp. 186-187, BIR rec.), the counsel of Manila Banking Corp. stated that the property of the deceased Jose P. Fernandez, covered by TCT No . 47222 and located in Manila, which was mortgaged to MBC as security of the indebtedness of Maritime Company and Fernandez Hermanos, Inc., will be sold at public auction to the highest bidder on March 31, 1989, to satisfy the indebtedness in the grand total of P240,420,693.17 as of February 28, 1989. It is the Court's belief that the said sale pushed through. For, aside from the fact that MBC did not anymore file a claim in Court, the aforesaid real property in Manila covered by TCT No. 47222 was no longer included in the inventory of real properties submitted to the probate court by the petitioner/administrator of the estate (see p. 221, BIR rec.). dctai By way of summary, this court allows only the following claims as valid deductions from the estate of Jose P. Fernandez, to wit: Claimant Amount Allowed 1. Banque Indosuez P20,000,000.00 2. State Investment House Inc., 2,200,000.00 3. Equitable Banking Corp. 4,000,000.00 4. Funeral Expenses 50,000.00 TOTAL P26,250,000.00" ============= Petitioner argues that the date of recognition of the claims made against the estate should not have been at the time/date of the settlement and payment thereof by the estate but at the time of the filing of the estate tax return and the issuance of the certificate of payment of estate tax by the BIR. Petitioner has obviously overlooked the fact that the settlement of the claims against the estate of Jose P. Fernandez was made in 1989, whereas the estate tax return was filed only on April 17, 1990 and the certification of payment of estate tax was issued by the BIR on April 27, 1990. Inasmuch as the settlement of the claims against the estate of Jose P. Fernandez was made prior to the filing of the estate of Jose P. Fernandez was made prior to the filing of the estate tax returns, only the actual amount paid by the estate as full and final settlement of the claims against it should thus be allowed as deduction. There is likewise no merit to petitioner's claim that the BIR bloated the gross asset value of the estate. As explained by respondent court, Section 91(b) of the Tax Code of 1987, as amended by P.D. No. 1994, provides that the appraised value of the real property as of the time of death shall be whichever is higher of the fair market value as determined by the Commissioner or the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors and that the mortgage value of the real property is considered to be the fair market value thereof. Moreover, petitioner did not present evidence to rebut the valuation of the personal properties of the estate. In fine, petitioner failed to show that the findings of fact of respondent court are not supported by substantial evidence as to warrant a reversal or modification of the judgment appealed from. WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. SO ORDERED. Elbinias and Labitoria, JJ . , concur.