Contemporary

Construction
VICENTE MADRIGAL and his wife, SUSANA PATERNO, plaintiffs-appellants, vs. JAMES J. RAFFERTY, Collector of Internal Revenue
<G.R. No. 12287, August 7, 1918> <Malcom, J.>
KEY TAKE-AWAY OR DOCTRINE TO REMEMBER
Where there is doubt as to the proper interpretation of a statute, the uniform construction placed upon it by the executive
or administrative officer charged with its enforcement will be adopted if necessary to resolve the doubt.

RECIT-READY / SUMMARY
This case is about the spouses Vicente and Susana claiming for recovery of an alleged overpayment of income tax in 1914.
Vicente argues that the income he declared in 1914 was not his income but was in fact the income of the conjugal
partnership existing between himself and his wife, hence, the same shall be divided by 2 upon computation of his income
tax due. On the contrary, Rafferty, US Commissioner of Internal Revenue (CIR) defined the Income Tax Law as extended in
the Philippines.
FACTS
• Vicente Madrigal and Susana Paterno were legally married and have conjugal partnership.
• Madrigal filed his total net income for the year is P296,302.73.
• Subsequently, Madrigal submitted the claim that the said total net income of year 1914 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, and that in computing and assessing the additional income tax provided by the Act of Congress of Oct. 3, 1913,
the income declared by Madrigal should be divided into 2 equal parts - as the half of the income shall reported by
Susana Paterno. Atty-General of the Philippines held with Madrigal.
• However, the revenue officers were not satisfied with Madrigal’s explanation and forwarded the same to the US
CIR, which thereafter decided against the claim of Madrigal’s claim.
• Madrigal and Paterno, under protest, brought action against Collector of Internal Revenue and the Deputy Collector
of Internal Revenue for the recovery of the sum P3,786.08 alleged to have been wrongfully and illegally assessed
and collected by the CIR.
• Trial court ruled in favor of the defendants. No costs.
ISSUES / RATIO ARTICLES/LAWS INVOLVED
1. Should the income reported by Madrigal on 1915
should be divided into 2 in computing for the
additional income tax?
2. Definition of Income Tax Law;
HELD
No
•The point of view of the CIR is that the Income Tax Law, as the name implies, taxes upon income and not upon
capital and property. 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.
• As Paterno 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 IT Law does not look on the spouses as individual partners in an ordinary partnership. The husband and wife
are only entitled to the exemption of P8,000 specifically granted by the law. The higher schedules of the additional
tax directed at the incomes of the wealthy may not be partially defeated by reliance on provisions in our Civil Code
dealing with the conjugal partnership and having no application to the Income Tax Law. The aims and purposes of
the IT Law must be given effect.
• In this case, since the IT Law drafted by the US Congress has been extended to the Philippines, the authoritative
decision of the official who is charged with enforcing it has peculiar force for the Philippines. It has come to be a
well-settled rule that great weight should be given to the construction placed upon a revenue law, whose meaning
is doubtful, by the department charged with its execution.

We conclude that the judgment should be as it is hereby affirmed with costs against appellants. So ordered.