Case Summary (G.R. No. 43082)
Procedural History
• October 4, 1932: Lorenzo sues Collector for refund of ₱2,052.74 inheritance tax plus 6% interest from September 15, 1932 (payment under protest).
• Collector counterclaims ₱1,191.27 representing 1% monthly interest from April 10, 1924 to June 30, 1931.
• Trial court (CFI Zamboanga) denies both claims.
• Both parties appeal to the Supreme Court.
Factual Background and Will Provisions
• Thomas Hanley’s will directs:
– Bequest of money and real estate proceeds to nephew Matthew Hanley for education of testator’s brother’s descendants.
– Real estate to be held by executors for ten years, then delivered outright to Matthew.
– Named two executors (one—P. J. M. Moore—later appointed trustee).
• March 10, 1924: Moore becomes trustee; resigns February 29, 1932; Lorenzo appointed trustee.
Tax Assessment and Payment Under Protest
• Collector values estate at death: realty ₱27,920, personalty ₱1,465, less allowable deductions ₱480.81 → net ₱28,904.19.
• Applies inheritance tax under Administrative Code §1536 and §1544 (as amended): primary tax ₱1,434.24; penalties (1% monthly interest and 25% surcharge) raise total to ₱2,052.74.
• March 15, 1932: motion granted in probate court; trustee ordered to pay.
• September 15, 1932: Lorenzo pays under protest and reserves right to sue for refund.
Issues on Appeal
- Accrual and due date of inheritance tax.
- Valuation date: moment of death or ten years later.
- Deductibility of trustee compensation under net-estate provisions.
- Applicable tax law and retroactivity of Act No. 3606.
- Delinquency, interest and surcharge liability, and counterclaim.
Accrual and Payment of Inheritance Tax
• Civil Code Article 657: “rights to succession … transmitted from the moment of … death.” Tax therefore accrues at death (May 27, 1922).
• Administrative Code §1544(b): tax “in other cases” must be paid within six months of death or, if judicial proceedings begin, “before delivering to each beneficiary his share.”
• Delivery to a trustee qualifies as delivery to the eventual beneficiary (cestui que trust).
• Trust estate vested in Moore on March 10, 1924; tax became due that date.
Valuation Date for Tax Computation
• Uniform rule: measure inheritance tax by estate’s value at death despite contingent remainder or delayed enjoyment.
• Subsequent appreciation or depreciation is immaterial (U.S. and Philippine precedents).
• Plaintiff’s contention to use 1932 values rejected.
Deductibility of Trustee Compensation
• Revised Administrative Code §1539 allows deduction of judicial expenses of probate and proven debts but not commissions of trustees.
• Trustee fees are neither statutory administration expenses nor “essential to the perfection of heirs’ rights.”
• No Philippine statute permits trustee compensation deduction for inheritance tax purposes.
Applicable Law and Retroactivity
• Tax law in effect at decedent’s death governs inheritance taxation (Revised Administrative Code as amended by Act No. 3031, effective March 9, 1922).
• Act No. 3606 (effective January 1, 1930) amendments are not retroactive absent clear legislative intent.
• Provisions of the Revised Penal Code on retroactivity do not apply to revenue statutes.
Delinquency, Interest, and Surcharge
• Delinquency commenced March 10, 1924, when estate delivered to trustee without tax payment.
• Interest at 12% per annum mandatory on unpaid tax from delinquency until full payment.
• Surcharge of 25% atta
Case Syllabus (G.R. No. 43082)
Facts
- Thomas Hanley died May 27, 1922 in Zamboanga, leaving real property valued at ₱27,920 and personal property at ₱1,465.
- His will directed that real estate be managed by executors for ten years, with proceeds for his nephew Matthew Hanley’s education, then vested fully in Matthew.
- Probate began June 14, 1922; P. J. M. Moore was appointed trustee March 8, 1924, qualified March 10, 1924, and served until February 29, 1932, when Pablo Lorenzo succeeded him.
- The Collector assessed an inheritance tax of ₱1,434.24 plus penalties and a 25% surcharge, totaling ₱2,052.74, based on estate value at death.
- On September 15, 1932 Lorenzo paid ₱2,052.74 under protest and sued for refund with interest; the Collector counterclaimed ₱1,191.27 for unpaid interest.
- The Court of First Instance of Zamboanga dismissed both claims; both parties appealed to the Supreme Court.
Procedural History
- Trial court: dismissed plaintiff’s refund action and defendant’s counterclaim.
- Both parties appealed to the Supreme Court of the Philippines.
Issues
- When does the inheritance tax accrue and when must it be paid?
- Should the tax be computed on the estate’s value at death or at vesting after ten years?
- Are trustee commissions deductible in determining the net estate?
- Which statute applies: R.A.C. §§1543–1544 as amended by Act 3031 (1922) or Act 3606 (1930), and is the latter retroactive?
- Did delinquency occur, and what interest and surcharge apply?
- What amounts ar