CASE DIGEST : Wells Fargo Bank & Union Trust Company v. Collector of Internal Revenue G.R. No. L-46720 G.R. No. 46720 June 28, 1940

 

FACTS

Birdie Lillian Eye, a resident and domiciliary of Los Angeles, California, died on September 16, 1932, leaving a will that was duly probated in California. Among the properties included in her estate was her one-half conjugal share in 70,000 shares of stock of the Benguet Consolidated Mining Company, a corporation organized under Philippine laws with its principal office in Manila. The shares remained in the Philippines, and the stock certificates had been endorsed in blank and entrusted to the corporation's secretary. The estate paid the corresponding Federal and California inheritance taxes on the shares.

The Collector of Internal Revenue nevertheless assessed Philippine inheritance tax on the transfer of the shares pursuant to Section 1536 of the Administrative Code, which imposed inheritance tax on shares issued by corporations organized in the Philippines. Wells Fargo Bank & Union Trust Company, as trustee of the estate, filed a petition for declaratory judgment, arguing that the shares, being intangible property, had their situs at the decedent's domicile in California under the doctrine mobilia sequuntur personam. Thus, the estate contended that only California could impose inheritance tax on the transfer of the shares and that the Philippine assessment amounted to impermissible multiple taxation. The Court of First Instance ruled that the shares were subject to Philippine inheritance tax, prompting the appeal to the Supreme Court.

The petitioner further argued that the due process clause barred the Philippine Government from taxing the transmission of intangible property owned by a non-resident decedent. It relied on earlier United States decisions recognizing that the situs of intangible property for inheritance tax purposes is generally at the domicile of the owner. The government, however, maintained that the shares represented ownership in a domestic corporation created under Philippine law and that their transfer was sufficiently connected with the Philippines to justify the imposition of inheritance tax.

ISSUE

Whether the Philippine Government may impose inheritance tax under Section 1536 of the Administrative Code on the transmission by death of shares of stock in a domestic corporation owned by a non-resident decedent, notwithstanding that the decedent was domiciled in California and had already paid inheritance taxes there.

Whether the doctrine mobilia sequuntur personam, which generally fixes the situs of intangible personal property at the domicile of the owner, precludes the Philippines from taxing the transfer of such shares, and whether the assessment violates the due process clause by subjecting the same property to multiple inheritance taxation.

HELD

The Supreme Court affirmed the judgment of the Court of First Instance and held that the shares of stock were subject to Philippine inheritance tax. It ruled that Section 1536 of the Administrative Code expressly subjects to inheritance tax every transmission by death of shares issued by corporations organized or constituted in the Philippines. The Court emphasized that an inheritance tax is not a tax on the property itself but on the privilege of transmitting property upon death. While the rule mobilia sequuntur personam generally fixes the situs of intangible property at the owner's domicile, the Court held that the doctrine is merely a legal fiction adopted for convenience and must yield where the property has acquired a business or taxable situs in another jurisdiction.

The Court explained that the Benguet Consolidated Mining Company was a Philippine corporation, the stock certificates remained physically in the Philippines, and they were endorsed and held by the corporation's secretary, who possessed authority to vote the shares, collect dividends, and otherwise exercise rights over them. These circumstances established a substantial connection between the shares and the Philippines, thereby giving the Philippine Government jurisdiction to tax their transmission. The Court likewise rejected the due process argument, explaining that the issue involved the power of taxation rather than deprivation of property without due process. It observed that multiple taxation is not prohibited where different jurisdictions possess distinct bases for exercising taxing power, such as domicile, citizenship, or situs of the property. Accordingly, the Court sustained the Philippine inheritance tax and reaffirmed that intangible property may acquire a taxable situs outside the owner's domicile when protected by and benefiting from the laws of another jurisdiction.