by Gena Terre

VICENTE MADRIGAL v. JAMES J. RAFFERTY, GR No. 12287, 1918-08-07

Facts:

Vicente Madrigal and Susana Paterno were legally married... contracted under the provisions of law concerning conjugal partnerships

Vicente Madrigal filed a sworn declaration on... the prescribed form with the Collector of Internal Revenue, showing, as his total net income for the year 1914, the sum of P296,302.73... did not represent his income for the year 1914, but was in fact the income... of the conjugal partnership existing between himself and his wife Susana Paterno... the income declared by Vicente Madrigal should be divided into two equal parts,... one-half to be considered the income of Vicente Madrigal and the other half the income of Susana Paterno

After payment under protest, and after the protest of Madrigal had been decided adversely by the Collector of Internal Revenue, action was begun by Vicente Madrigal and his wife Susana Paterno in the Court of First Instance of the city of Manila against the Collector of

Internal Revenue... for the recovery of the sum of P3,786.08, alleged to have been wrongfully and illegally assessed and collected

The income of Vicente Madrigal and his wife Susana Paterno for the year 1914 was made up of... three items: (1) P362,407.67, the profits made by Vicente Madrigal in his coal and shipping business; (2) P4,086.50, the profits made by Susana Paterno in her embroidery business; (3) P16,687.80, the profits made by Vicente Madrigal in a pawnshop company.

The sum of these three... items is P383,181.97, the gross income of Vicente Madrigal and Susana Paterno for the year 1914.

Issues:

with the additional income tax, is that it should be divided into two equal parts, because of the conjugal partnership existing between them.

Ruling:

IMPERIALIST SWINE

The Income Tax Law of... the United States, extended to the Philippine Islands... the result of an effect on the part of legislators to put into statutory form this canon of taxation and of social reform... to mitigate the evils arising from inequalities of wealth by a progressive scheme... of taxation,... Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of her husband Vicente Madrigal during the life of the conjugal partnership. She has an interest in the ultimate property rights and in the ultimate ownership of property acquired as income after... such income has become capital. Susana Paterno has no absolute right to one-half the income of the conjugal partnership. Not being seized of a separate estate, Susana Paterno cannot make a separate return in order to receive the benefit of the exemption which would arise by... reason of the additional tax.

As she has no estate and income, actually and legally vested in her and entirely distinct from her husband's property, the income cannot properly be considered the separate income of the wife for the purposes of the additional tax.

the

Income Tax Law does not look on the spouses as individual partners in an ordinary partnership.

Principles:

Income as contrasted with capital or property is to be the test. The essential difference between capital and income is that capital is a fund; income is a flow. A fund of property existing at an instant of time is called capital. A flow of services rendered by that capital... by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time is called income. Capital is wealth, while income is the service of wealth.

"The fact is that property is a tree, income is the fruit; labor is a tree, income the fruit; capital is a tree, income the fruit."

A tax on... income is not a tax on property. "Income," as here used, can be defined as "profits or gains."