Taxation Case Digest: Estate Juliana Diez vs Commissioner

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL

vs.

COMMISSIONER OF INTERNAL REVENUE

GR. No. 155541

January 27, 2004

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PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

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Facts:

During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative investigation of the decedent’s tax liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the decedent “c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedent’s deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied BIR’s claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIR’s service on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedent’s death. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the assessment became final, executory, and incontestable.

Issue:

(1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through PhilTrust was a valid service as to bind the estate.
(2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable.

Held:

(1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayer’s death, none of the PhilTrust’s acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedent’s death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment.
(2) The assessment was served not even on an heir or the estate but on a completely disinterested party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondent’s claim for collection filed with the court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law.