SAN AGUSTIN v. CIR

G.R. No. 138485, September 10, 2011

FACTS: Atty. Jose San Agustin died on June 27, 1990 a holographic will executed on April 21, 1980 giving all his estate to his widow.

Probate proceedings were instituted. Pursuantly, notice of decedents death was sent to the Commissioner of Internal Revenue. An estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an extension of two years for the payment of the tax. BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under Sections 248 and 249 of the National Internal Revenue Code, as amended.

In the probate proceedings, the RTC allowed the will and appointed Jose Feria as Executor of the estate. The executor submitted to the probate court an inventory of the estate with a motion for authority to withdraw funds for the payment of the estate tax. Such authority was granted. Thereafter, the executor paid the estate tax in the amount of P1,676,432 within the six (6) months extension period granted by the BIR.

The widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment Notice from the BIR, showing a deficiency estate tax of P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00.

Within the ten-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax but requesting that the surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the extension period.

The Commissioner issued an Assessment Notice reiterating the demand in the pre-assessment notice and requesting payment on or before thirty (30) days upon receipt thereof.

The executor requested the Commissioner a reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc. which was denied stating that there was no legal justification for the waiver. However, the payment of the basic deficiency tax in the amount of P538,509.50 was accepted.

In view thereof, the respondent estate paid the amount of the penalties under protest.

A Petition for Review was then filed by the executor with the CTA with the prayer that the Commissioners letter/decision be reversed and that a refund of the amount of the amount paid be ordered. The Commissioner opposed the said petition, alleging that the CTAs jurisdiction was not properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National Internal Revenue Code. 

Upholding its jurisdiction over the dispute, the CTA rendered its Decision modifying the CIRs assessment for surcharge, interests and other penalties from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for which reason the CTA ordered the reimbursement to the respondent estate the balance excess payment.

The decision of the Court of Tax Appeals was appealed by the Commissioner of Internal Revenue to the Court of Appeals. In its decision, the Court of Appeals granted the petition of the Commissioner of Internal Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject matter and that, accordingly, its decision was null and void.

Hence, the instant petition.

ISSUES:

1. Whether the filing of a claim for refund is essential before the filing of the petition for review.

2. The imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is not in accord with the law and therefore illegal.

 

HELD: The Court finds the petition partly meritorious.

1. No. Citing the case of Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The court held the to require the taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, despite the fact that said taxpayer already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Commissioner would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. 

2. No. The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent of which is P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of twenty percent (20%) per annum. In this case the interest is P13,462.74  In sum, the tax liability of the estate is the total of the surcharge and interest which is P148,090.00 not P438,040.38. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38.