Pajonar vs Commissioner
328 SCRA 666 [GR No. 123206 March 22, 2006]
Facts: Pedro Pajonar, a member of the Philippine Scout of Bataan during the second world war, was a part of the infamous death march by reason of which he suffered shock and became insane. His sister Josefina Pajonar became the guardian over his person, while his property was placed under the guardianship of the Philippine National Bank by the Regional Trial Court (RTC) of Dumaguete City Branch 31 in special proceedings no. 1254. He died on January 10, 1988. He was survived by his two brothers Isidro Pajonar and Gregorio Pajonar, his sister Josefina, nephews Concordio Jandog and Marco Jandog and niece Conchita Jandog. On May 11, 1988, PNB filed an accounting of the decedent’s property under guardianship but did not file an estate tax return, it advised Pedro Pajonar’s heirs to execute an extrajudicial settlement and to pay the taxes on his estate. On April 5, 1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes in the amount of Php2,557. On December 19, 1988, pursuant to a second assessment by the BIR for defeciency estate tax, the estate of Pedro Pajonar paid estate tax in the amount of Php1,527,790.98. Josefina Pajonar, in her capacity as administatrix and heir of Pedro Pajonar’s estate filed a protest on January 11, 1989 with the BIR praying that the estate tax payment in the amount of Php1,527,790.98, or at least some portion of it be returned to the heirs for the alleged erroneously paid taxes.
Issue: Whether or not the notarial fee paid for the extrajudicial settlement in the amount of Php60,753 and the attorney’s fees in the guardianship proceedings in the amount of Php 50,000 may be allowed as deductions from the gross estate of decedent in order to arrive at the value of net estate.
Held: Yes. The notarial fee for the extrajudicial settlement and the attorney’s fees in the guardianship proceedings are allowable deductions from the gross estate of Pedro Pajonar.
Although the tax code specifies “judicial expenses of the testamentary or intestate proceedings” there is no reason why expenses incurred in the administration and settlement of an estate in extrajudicial proceedings should not be allowed. However, deduction is limited to such administration expenses as are actually and necessarily incurred in the collection of assets of the estate, payment of debts, and distribution of the remainder among those entitled thereto. Such expenses may include executor’s or administrator’s fees, attorney’s fees, court fees and charges, appraiser’s fees, clerk hire, cost of preserving and distributing the estate and storing or maintaining it, brokerage fees or commissions for selling or disposing of the estate and the like. Deductible attorney’s fees are those incurred by the executor or administrator in the settlement of the estate or in defending or prosecuting claims against or due the estate.
Attorney’s fees on the other hand, in order to be deductible from the gross estate must be essential to the settlement of the estate.