PHILIPPINE GUARANTY CO., INC. v. CIR GR No. L-22074, April 30, 1965

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PHILIPPINE GUARANTY CO., INC. v. CIR

GR No. L-22074, April 30, 1965

 

 TOPIC: NECESSITY THEORY

Principle: The power to tax is an attribute of sovereignty. It is a power emanating from necessity. 

FACTS: 

The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies.

ISSUE:  Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them?

RULING:

No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurer’s exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.

The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

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DOF OPINION NO. 007-19 (Ruling No. ITAD 048-18)

DOF OPINION NO. 007-19

Subject: Request for Review of Bureau of Internal Revenue International Tax Affairs Divisions Ruling No. ITAD 048-18

Principle: A resident foreign corporation, engaged in trade and business within the Philippines through its personnel for more than 183 days, is liable to pay income taxes for income attributable to the permanent establishment.

FACTS:

RP International Resources Pte. Ltd. (RPIR), a foreign corporation organized and existing under the laws of Singapore, is a specialist recruiter to global telecommunication, media, and technology industries, and provides specialist executive search, contingent, contract and launch and transformations resource solutions. RPIR is not licensed to do business in the Philippines. On the other hand, Amdocs Philippines, Inc. (API) is a domestic corporation organized and existing under the laws of the Philippines. API is an affiliate of Amdocs Singapore Pte. Ltd. (ASPL), a foreign corporation organized and existing under the laws of Singapore. RPIR and ASPL entered into a 2- year Professional Service Agreement (PSA) wherein the former agreed to provide professional services to the latter and its affiliates, including API, (collectively hereinafter referred to as the Amdocs Group). The PSA was renewed several times.

Procurement of experts by the Amdocs Group is done through the submission to RPIR of a "Professional Services Order." Compensation rates, the duration of the assignment, payment instructions, and other terms and conditions of an expert's deployment are embodied in a "Work Order" issued by RPIR. During the life of the PSA between RPIR and ASPL, there were also personnel assigned to API with their respective deployments. Based on the start dates and end dates of each respective expert's Work Order, the aggregate service period in the Philippines by RPIR personnel from 15 December 2015 to 11 June 2018 was 909 days for the duration of the PSA, with each deployment lasting for more than 183 days per expert. 

RPIR, through counsel, Gorriceta Africa Cauton & Saavedra, filed for Tax Treaty Relief Application (TTRA) with the BIR requesting for confirmation that the service fees paid by API to RPIR are exempt from income tax pursuant Article 7 in relation to Article 5 of the Philippines- Singapore Tax Treaty (RP-SG Tax Treaty). However, the TTRA for tax exemption was denied by the BIR in BIR Ruling No. ITAD No. 048-18, reasoning that RPIR carried on its business in the Philippines through a permanent establishment (PE), thereby effectively negating the exemption invoked by RPIR.

The BIR maintains that the performance of services by RPIR employees in the Philippines for more than 183 days, specifically, for 909 days from 2015 to 2018, created a PE therein. Hence, the BIR ruled that the service fees paid by API to RPIR are subject to income tax in the Philippines under paragraph 1, Article 7 of the treaty; specifically, the fees are subject to the rate of 30% under Section 28(B)(1) of the Tax Code. Moreover, the service fees are likewise subject to VAT since the services were rendered in the Philippines under Section 108(A) of the Tax Code. Aggrieved, RPIR filed the instant Request for Review.

ISSUE: Whether or not RPIR is exempt from Philippine taxes under Article 7 of the RP-SG Tax Treaty, if it does not deploy its own employees or other personnel, and not deemed to be maintaining a permanent establishment in the Philippines.

RULING:

No. RPIR carried on its business in the Philippines through a permanent establishment (PE) by furnishing services in the Philippines through its personnel for more than 183 days. 

The Commentaries of the Organization for Economic Cooperation and Development (OECD) Model Tax Convention on Income and on Capital define "personnel'' to refer to "entrepreneur or persons who are in a paid-employment relationship with the enterprise. These personnel include employees and other persons receiving instructions from the enterprise (e.g., dependent agents)."

As such, we agree with the BIR that the services performed by these personnel-experts for more than 183 days in the Philippines created a PE herein. Accordingly, income attributable to that PE is not exempt from Philippine taxation.

We held also that RPIR is engaged in trade and business within the Philippines. Hence, for income tax purposes, it is considered a resident foreign corporation.  Through its personnel, RPIR established a PE in the Philippines thus, doing business therein. Its non-registration with the Securities and Exchange Commission (SEC) does not affect the fact that it is a resident foreign corporation for income tax purposes. The extension of RPIR's service contract (PSA) with ASPL to API and RPIR's act of deploying its personnel to API allowed it to engage in trade and business in the Philippines. Its personnel performed acts or works or exercises functions that are incidental and beneficial to the purpose of RPIR's business. Likewise, the activities or works of RPIR personnel bring profits to RPIR. 

However, in determining the profits of RPIR which will be subjected to income tax, the provisions of the treaty will govern. Article 7 (par. 3) of the RP-SG Treaty provides that: "3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses so incurred, whether included in the State in which the permanent establishment is situated or elsewhere."

Finally, as regards the value added tax aspect of the subject ruling, the same was not raised as an issue by RPIR. Nevertheless, there is no denying that the services were rendered in the Philippines. However, we refer the same to the BIR for proper adjudication as to whether the applicable thresholds were met.

In view of the foregoing, we regret to deny the request for review and hold that RPIR established a permanent establishment in the Philippines thus, income attributable to that permanent establishment is not exempt from Philippine taxation.

Nepomuceno v.CA [139 SCRA 206]

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Nepomuceno v.CA
139 SCRA 206
October 9, 1985

SUBJECT: LAW ON WILLS AND SUCCESSION

TOPIC: Intrinsic Validity on Probate Order

FACTS: Martin Jugo died with last Will and Testament with all the formalities required by law. In the said Will, the testator named and appointed herein petitioner Sofia J. Nepomuceno as his sole and only executor of his estate. It is clearly stated in the Will that the testator was legally married to a certain Rufina Gomez by whom he had two legitimate children, Oscar and Carmelita, but since 1952, he had been estranged from his lawfully wedded wife and had been living with petitioner as husband and wife. In fact, on December 5, 1952, the testator Martin Jugo and the petitioner herein, Sofia J. Nepomuceno were married in Victoria, Tarlac before the Justice of the Peace.

 

The testator devised to his forced heirs, namely, his legal wife Rufina Gomez and his children Oscar and Carmelita his entire estate and the free portion thereof to herein petitioner. The petitioner filed a petition for the probate of the last Will and Testament of the deceased Martin Jugo in the CFI Rizal and asked for the issuance to her of letters testamentary. The legal wife of the testator, Rufina Gomez and her children filed an opposition.

 

The lower court denied the probate of the Will on the ground that as the testator admitted in his Will to cohabiting with the petitioner from December 1952 until his death on July 16, 1974, the Will's admission to probate will be an idle exercise because on the face of the Will, the invalidity of its intrinsic provisions is evident.

 

The case reached the CA and the respondent court set aside the decision of the CFI of Rizal denying the probate of the will. The CA declared the Will to be valid except that the devise in favor of the petitioner is null and void pursuant to Article 739 in relation with Article 1028.

 

ISSUE: WON the probate court can pass upon the intrinsic validity of the testamentary provision in favor of herein petitioner.

 

HELD Yes, as an exception. The general rule is that in probate proceedings, the court's area of inquiry is limited to an examination and resolution of the extrinsic validity of the Will. The rule, however, is not inflexible and absolute. Given exceptional circumstances, the probate court is not powerless to do what the situation constrains it to do and pass upon certain provisions of the Will.

 

In Nuguid v. Nuguid, the testator instituted the petitioner as universal heir and completely preterited her surviving forced heirs. A will of this nature, no matter how valid it may appear extrinsically, would be null and void. Separate or latter proceedings to determine the intrinsic validity of the testamentary provisions would be superfluous.

 

The prohibition in Article 739 of the Civil Code is against the making of a donation between persons who are living in adultery or concubinage. It is the donation which becomes void. The giver cannot give even assuming that the recipient may receive. The very wordings of the Will invalidate the legacy because the testator admitted he was disposing the properties to a person with whom he had been living in concubinage.

  

Here, the will itself admitted on its face the relationship between the testator and the petitioner. The will was validly executed in accordance with law but the court didn't find it to serve a practical purpose to remand the nullified provision in a separate action for that purpose only since in the probate of a will, the court does not ordinarily look into the intrinsic validity of its provisions. Thus, the devisee is invalid by virtue of Art. 739 which voids a donation made between persons guilty of adultery/concubinage at the time of the donations. Under Art, 1028 it is also prohibited.

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Pastor v. CA [G.R. No. L-56340, June 24, 1983]

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Pastor v. CA

G.R. No. L-56340, June 24, 1983.

 

SUBJECT: LAW ON WILLS AND SUCCESSION

Topic: Intrinsic Validity and Ownership on a Probate Order; 

 
FACTS: Spouses Alvaro Pastor, Sr. and Sofia Bossio were survived by their two legitimate children Alvaro Pastor, Jr. (Pastor Jr.) and Sofia Pastor (Sofia), and an illegitimate child, Lewellyn Quemada. Quemada filed a petition for the probate and allowance of an alleged holographic will of Pastor Sr. with the CFI which contained only one testamentary disposition: a legacy in favor of Quemada consisting of 30% of Pastor Sr.’s 42% share in the operation by ATLAS. Thereafter, the probate court appointed Quemada as special administrator of the entire estate of Pastor Sr. whether or not covered or affected by the holographic will. Consequently, Quemada instituted against Pastor Jr., and his wife an action for reconveyance of alleged properties of estate which included the properties subject of the legacy which were in the names of spouses Pastor Sr. and Ma. Elena, who claimed to be the owners in their own rights, and not by inheritance.

 
The probate court issued an order allowing the will to probate. The order was affirmed by CA and on petition for review, the SC dismissed the petition and remanded the same to the probate court after denying reconsideration. For two years after remand of the case to the probate court, all pleadings of both parties remained unacted upon.

 
Not long after, the probate court set the hearing on the intrinsic validity of the will but upon objection of Pastor Jr. and Sofia on the ground of pendency of the reconveyance suit, no hearing was held. Instead, the probate court required the parties to submit their respective position papers. While the reconveyance suit was still pending in another court, the probate court issued Order of Execution and Garnishment, resolving the question of ownership of the royalties payable by ATLAS and ruling in effect that the legacy to Quemada was not inofficious.

 
Pursuant to said order, ATLAS was directed to remit directly to Quemada the 42% royalties due to decedent’s estate, of which Quemada was authorized to retain 75% for himself as legatee. Further, the 33% share of Pastor Jr. and/or his assignees was ordered garnished to answer for the accumulated legacy of Quemada. Being ―immediately executory‖, Quemada succeeded in obtaining a Writ of Execution and Garnishment.

 
The oppositors sought reconsideration thereof but in the meantime, the probate court ordered suspension of payment of all royalties due Pastor Jr. and/or his assignees until after resolution of oppositor’s motion for reconsideration. Pending motion, Pastor Jr. and his wife filed with the CA a petition for certiorari and prohibition with a prayer for writ of preliminary injunction assailing the writ of execution and garnishment issued by the probate court. However, said petition was denied as well as their motion for reconsideration. Hence, this petition for review by certiorari with prayer for a writ of preliminary injunction.

 
ISSUE: Whether or not the Probate Order resolved with finality the questions of ownership and intrinsic validity.
 

RULING: In a special proceeding for the probate of a will, the issue by and large is restricted to the extrinsic validity of the will. As a rule, the question of ownership is an extraneous matter which the Probate Court cannot resolve with finality. Thus, for the purpose of determining whether a certain property should or should not be included in the inventory of estate properties, the Probate Court may pass upon the title thereto, but such determination is provisional, not conclusive, and is subject to the final decision in a separate action to resolve title.
 
The Order sought to be executed by the assailed Order of execution is the Probate Order allegedly resolved the question of ownership of the disputed mining properties. However, nowhere in the dispositive portion is there a declaration of ownership of specific properties. On the contrary, it is manifested therein that ownership was not resolved. For it confined itself to the question of extrinsic validity of the will, and the need for and propriety of appointing a special administrator. Thus it allowed and approved the holographic will ―with respect to its extrinsic validity, the same having been duly authenticated pursuant to the requisites or solemnities prescribed by law.‖ It declared that the intestate estate administration aspect must proceed subject to the outcome of the suit for reconveyance of ownership and possession of real and personal properties.
 
The Probate Court did not resolve the question of ownership of the properties listed in the estate inventory, considering that the issue of ownership was the very subject of controversy in the reconveyance suit that was still pending. It was, therefore, error for the assailed implementing Orders to conclude that the Probate Order adjudged with finality the question of ownership of the mining properties and royalties, and that, premised on this conclusion, the dispositive portion of the said Probate Order directed special administrator to pay the legacy in dispute.

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Maninang v. CA [G.R. No. L-57848 June 19, 1982]

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 Maninang v. CA

G.R. No. L-57848 June 19, 1982

 

 SUBJECT: LAW ON WILLS AND SUCCESSION

Topic: Preterition

 

FACTS: Clemencia Aseneta, single, died and left a holographic will saying that all her real properties located in Manila, Makati, Quezon City, Albay and Legaspi City and all her personal properties shall be inherited by Dra. Soledad L. Maninang with whose family she have lived with. Soledad Maninang filed a Petition for probate of the Will of the decedent with the CFI. Bernardo Aseneta, who, as the adopted son, claims to be the sole heir of decedent Clemencia Aseneta, instituted intestate proceedings.

 

Bernardo contends that the holographic will was null and void because he, as the only compulsory heir, was preterited and, therefore, intestacy should ensue. The lower Court ordered the dismissal of the Testate Case.

 

ISSUE: WON the Courta quoa quo acted in excess of its jurisdiction when it dismissed the Testate Case.

 

HELD: YES. Generally, the probate of a Will is mandatory. Normally, the probate of a Will does not look into its intrinsic validity.- The Nuguid and the Balanay cases provide the exception rather than the rule. The intrinsic validity of the Wills in those cases was passed upon even before probate because "practical considerations" so demanded. Moreover, for the parties in the Nuguid case, the "meat of the controversy" was the intrinsic validity of the Will; in fact, the parties in that case "shunted aside the question of whether or not the Will should be allowed probate."

 

Not so in the case before us now where the probate of the Will is insisted on by petitioners and a resolution on the extrinsic validity of the Will demanded. Moreover, in the Nuguid case, this Court ruled that the Will was intrinsically invalid as it completely preterited the parents of the testator.

 

In the instant case, a crucial issue that calls for resolution is whether under the terms of the decedent's Will, private respondent had been preterited or disinherited, and if the latter, whether it was a valid disinheritance. Preterition and disinheritance are two diverse concepts.

 

Preterition consists in the omission in the testator's will of the forced heirs or anyone of them, either because they are not mentioned therein, or, though mentioned, they are neither instituted as heirs nor are expressly disinherited.  Disinheritance is a testamentary disposition depriving any compulsory heirs of his share in the legitime for a cause authorized by law.

 

By virtue of the dismissal of the testate case, the determination of that controversial issue has not been thoroughly considered. The conclusion of the trial court was that Bernardo has been preterited. The SC is of opinion, however, that from the face of the will, that conclusion is not indubitable.  Such preterition is still questionable.  The Special Proceeding is REMANDED to the lower court.

 

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De la Cerna v. Potot [G.R. No. L-20234, December 23, 1964]

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De la Cerna v. Potot

G.R. No. L-20234, December 23, 1964

SUBJECT: LAW ON WILLS AND SUCCESSION

Topic: Probate of Joint Wills

 

FACTS: Spouses Bernabe de la Serna and Gervasia Rebaca, executed a joint last will and testament whereby they willed that their two parcels of land acquired during their marriage together with all improvements thereon shall be given to Manuela Rebaca, their niece. Bernabe died and the will was probated in 1939 after due publication as required by law and there being no opposition. By order of Oct. 31, 1939, the Court admitted for probate the said will but only for the part of Bernabe.

 

Upon the death of Gervasia Rebaca, another petition for the probate of the same will insofar as Gervasia was concerned was filed by Manuela but the court dismissed it for failure of Manuela to appear.

  

Paula de la Cerna questioned for the nullity of the joint will of Bernabe being prohibited in the Philippine law. The Court of First Instance ordered the petition heard and declared the testament null and void, for being executed contrary to the prohibition of joint wills in the Civil Code but on appeal by the testamentary heir, the Court of Appeals reversed, on the ground that the decree of probate in 1939 was issued by a court of probate jurisdiction and conclusive on the due execution of the testament. Hence, this appeal.

  

ISSUE: Whether or not the joint will is valid as to the share of Gervasia who died later than Bernabe.

 

RULING: NO.

 

The appealed decision correctly held that the final decree of probate, entered in 1939 by the Court of First Instance of Cebu (when the testator, Bernabe de la Cerna, died), has conclusive effect as to his last will and testament despite the fact that even then the Civil Code already decreed the invalidity of joint wills, whether in favor of the joint testators, reciprocally, or in favor of a third party (Art. 669, old Civil Code). A final judgment rendered on a petition for the probate of a will is binding upon the whole world. However, this is only with respect to the estate of the husband but cannot affect the estate of the wife; considering that a joint will is a separate will of each testator.The probate decree in 1989 could only affect the share of the deceased husband, Bernabe de la Cerna. It could not include the disposition of the share of the wife, Gervasia Rebaca, who was then still alive, and over whose interest in the conjugal properties the probate court acquired no jurisdiction, precisely because her estate could not then be in issue.

 

Be it remembered that prior to the new Civil Code, a will could not be probated during the testator's lifetime. It follows that the validity of the joint will, in so far as the estate of the wife was concerned, must be, on her death, reexamined and adjudicated de novo, since a joint will is considered a separate will of each testator. Therefore, the undivided interest of Gervasia Rebaca should pass upon her death to her heirs’ intestate, and not to the testamentary heir, unless some other valid will in her favor is shown to exist.

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Gallanosa v. Arcangel [G.R. No. L-29300; June 21, 1978]

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Gallanosa v. Arcangel

G.R. No. L-29300; June 21, 1978

 

 SUBJECT: Law on Wills and Succession

Topic/Doctrine: Allowance and Disallowance of Wills

 

FACTS:

Florentino Hitosis executed a will in 1938 when he was eighty years old wherein he instituted as his only heirs his stepson Pedro Gallanosa and the latter’s wife Corazon Grecia. He died in 1939, survived by his brother Leon Hitosis and several nephews and nieces.

 

A petition for probate was duly filed by the testamentary heirs. Opposition to the probate was registered by the legal heirs. After hearing, the probate court admitted the will to probate and appointed Gallanosa as executor. In 1943, a project of partition of sixty-one (61) parcels of land constituting the bulk of the testator’s estate was finally approved. There was no appeal from the decree of probate and from the order of partition and distribution.

 

In 1952, the testator’s legal heirs instituted an action for the recovery of the 61 parcels of land on the ground of acquisitive prescription. The action was dismissed. Again, there was no appeal from the order of dismissal. In 1967, said legal heirs instituted another action in the same court against the testamentary heirs for the “annulment” of the will and the recovery of the 61 parcels of land, alleging that the Gallanosa spouses caused the execution of the will through fraud and deceit. Upon motion of defendants, the court dismissed the action. Plaintiffs filed a motion for reconsideration. Respondent Judge granted it and set aside the order of dismissal. From this order of dismissal, defendants went up to the Supreme Court by certiorari.

 

Petitioners (defendants) contend that private respondents (plaintiffs) do not have a cause of action for the “annulment” of the will and for the recovery of the 61 parcels of landby reason of res judicata and of prescription. On the other hand, private respondents contend that the will is void, and therefore their right of action is imprescriptible.

 

ISSUE: Whether or not the private respondents have a cause of action for the annulment of the will of Florention Hitosis and for the recovery of the parcels of land.

  

HELD: No.

 

The lower court committed a grave abuse of discretion in reconsidering its order of dismissal and in ignoring the testamentary case. It is evident from the allegations of the complaint that the action is barred by res judicata. The decree of probate is conclusive as to the due execution or formal validity of the will. The decree of adjudication rendered by the trial court in the testate proceeding for the settlement of the estate of Florentino Hitosis having been rendered in a proceeding in rem, is binding upon the whole world.

 

Speaking through Justice Aquino, the Supreme Court held:

“It is evident from the allegations of the complaint and from defendants’ motion to dismiss that plaintiffs’ 1967 action is barred by res judicata, a double-barrelled defense, and by prescription, acquisitive and extinctive, or by what are known in the jus civile and the jus gentium as usucapio, longitemporispossesio and praescriptio" (See Ramos vs. Ramos, L-19872, December 3, 1974, 61 SCRA 284).

 

Our procedural law does not sanction an action for the “annulment” of a will. In order that a will may take effect, it has to be probated, legalized or allowed in the proper testamentary proceeding. The probate of the will is mandatory

 

The 1939 decree of probate is conclusive as to the due execution or formal validity of the will.That means that the testator was of sound and disposing mind at the time when he executed the will and was not acting under duress, menace, fraud, or undue influence; that the will was signed by him in the presence of the required number of witnesses, and that the will is genuine and is not a forgery. Accordingly, these facts cannot again be questioned in a subsequent proceeding, not even in a criminal action for the forgery of the will.

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