Case Summary (G.R. No. 123206)
Key Dates and Proceedings
– January 10, 1988: Death of Pedro P. Pajonar
– April 5, 1988: Initial estate tax payment of ₱2,557 upon BIR assessment
– May 11, 1988: PNB files accounting of guarded assets (₱3,037,672.09)
– July 18, 1988: Josefina appointed administratrix in SP No. 2399 RTC Dumaguete
– December 19, 1988: Deficiency estate tax payment of ₱1,527,790.98
– January 11, 1989: Protest filed by Josefina for refund of deficiency payment
– August 15, 1989: Petition before CTA seeking refund or reduction
– May 6, 1993: CTA grants refund of ₱252,585.59, including deductions for notarial and attorney’s fees
– June 7, 1994: CTA reduces refundable amount to ₱76,502.42 but reaffirms deductions
– December 21, 1995: CA denies Commissioner’s petition for review
– March 22, 2000: Supreme Court resolution affirming CA decision
Applicable Law
1987 Philippine Constitution (post-1990 decisions)
Section 79, National Internal Revenue Code (1977, as amended December 1987): Deductions from gross estate include “funeral expenses” and “judicial expenses of the testamentary or intestate proceedings.”
Procedural History
Following the decedent’s death, the PNB guardian advised extrajudicial settlement and heirs paid both initial and deficiency estate taxes. Josefina Pajonar, as administratrix, protested the latter payment and petitioned the CTA for refund, asserting that certain administration expenses were deductible from the gross estate. The CTA allowed deductions for:
– ₱60,753 notarial fee on extrajudicial settlement
– ₱50,000 attorney’s fees in guardianship proceedings
The Commissioner moved for reconsideration; the CTA adjusted the refund for interest and penalties but maintained the deductibility of the questioned fees. The CA affirmed, prompting this appeal.
Issue
Whether the notarial fee for the extrajudicial settlement (₱60,753) and the attorney’s fees in the guardianship proceedings (₱50,000) qualify as deductible “judicial expenses of the testamentary or intestate proceedings” under Section 79 of the Tax Code.
CTA and CA Rulings
– CTA: Adopted U.S. jurisprudence treating necessary administration expenses—extrajudicial settlement costs and guardianship attorney’s fees—as deductible from gross estate if essential to asset collection, debt payment, or property distribution.
– CA: Held that although Section 79 refers to “judicial expenses,” extrajudicial administration expenses are similarly allowable when actually and necessarily incurred for settlement. The notarial fee and the guardianship attorney’s fees met this test.
Supreme Court Analysis
- Historical Origin: Philippine estate tax provisions largely mirror U.S. federal law; U.S. decisions interpreting analogous provisions are highly persuasive.
- Definition of Administration Expenses: Must be “essential to the collection of assets, payment of debts or distribution of property.” Expenditures for ind
Case Syllabus (G.R. No. 123206)
Facts of the Case
- Pedro P. Pajonar, a Philippine Scout veteran of the Bataan Death March, suffered insanity from wartime trauma.
- His sister, Josefina P. Pajonar, was appointed guardian of his person; the Philippine National Bank (PNB) became guardian of his property under RTC Dumaguete City, Special Proceeding No. 1254.
- Pedro Pajonar died on January 10, 1988, leaving two brothers, one sister, and several nephews and a niece.
- On May 11, 1988, PNB filed an accounting of the estate valued at ₱3,037,672.09 but did not file an estate tax return, advising heirs to execute an extrajudicial settlement.
- April 5, 1988: initial estate tax payment of ₱2,557 pursuant to BIR assessment.
- May 19, 1988: Josefina filed for letters of administration (Special Proceeding No. 2399); appointed administratrix July 18, 1988.
- December 19, 1988: second BIR assessment resulted in deficiency estate tax payment of ₱1,527,790.98.
Procedural History
- January 11, 1989: Protest filed with BIR seeking refund of deficiency estate tax.
- August 15, 1989: Petition for review filed with the Court of Tax Appeals (CTA Case No. 4381) for refund or reduction of ₱1,527,790.98.
- May 6, 1993: CTA Decision ordered refund of ₱252,585.59, allowing deductions for:
- ₱60,753 notarial fee for extrajudicial settlement
- ₱50,000 attorney’s fees in Special Proceeding No. 1254 (guardianship)
- June 15, 1993: Commissioner’s motion for reconsideration contested those deductions.
- June 7, 1994: CTA Resolution reduced refund to ₱76,502.43 to account for interest and exclude compromise penalty, but upheld both deductions.
- July 5, 1994: Commissioner appealed to the Court of Appeals.
- December 21, 1995: Court of Appeals denied the Commissioner’s petition, affirming CTA’s rulings.
- March 22, 2000: Supreme Court resolution on certiorari appeal.
Issue
- Whether the notarial fee for the extrajudicial settlement (₱60,753) and the attorney’s fees in the guardianship proceedings (₱50,000) qualify as “judicial expenses of the testamentary or intestate proceedings” under Section 79(a)(1)(B) of the National Internal Revenue Code for purposes of deducting from the