When tax may be subject to set-off

Compensation or set-off takes place by operation of law if the tax due and the tax credit are both overdue, demandable and fully liquidated.

SUPREME COURT: Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.  (G.R. No. L-18994. June 29, 1963)