Beruflich Dokumente
Kultur Dokumente
’s Answer
Capital vs Income | August 7, 1918 | J. Malcolm The income of Vicente Madrigal and his wife Susana Paterno for the year 1914
was made up of three items:
Nature of Case: Petition for review on certiorari (1) P362,407.67, the profits made by Vicente Madrigal in his coal and
Digest maker: IT shipping business;
SUMMARY: Petitioner husband declared his total net income and was made to pay (2) P4,086.50, the profits made by Susana Paterno in her embroidery
accordingly, however he later claimed that said total net income wasn’t his, but that of business;
his conjugal partnership with his wife. Thus, for the purpose of assessing the additional (3) P16,687.80, the profits made by Vicente Madrigal in a pawnshop
income tax, said income should be divided into two equal parts. He filed a complaint for company.
refund against the defendants, but the TC ruled against him. The Supreme Court The sum of these three items is P383,181.97, the gross income of Vicente
affirmed the judgment. Madrigal and Susana Paterno for the year 1914.
General deductions were claimed and allowed in the sum of P86,879.24.
DOCTRINE: The CC provisions on conjugal partnership are not applicable to the The resulting net income was P296,302.73.
Income Tax Law and that the wife, having no separate estate or income, cannot make For the purpose of assessing the normal tax of one per cent on the net income
a separate tax return. there were allowed as specific deductions the following:
(1) P16,687.80, the tax upon which was to be paid at source, and
FACTS: (2) P8,000, the specific exemption granted to Vicente Madrigal and
Prior to Jan. 1, 1914: Vicente Madrigal and Susana Paterno were legally married Susana Paterno, husband and wife.
The marriage was contracted under the provisions of law concerning conjugal The remainder, P271,614.93 was the sum upon which the normal tax of one per
partnerships cent was assessed.
Feb. 25, 1915: Madrigal filed a sworn declaration, which showed as his total net The normal tax thus arrived at was P2,716.15.
income for 1914, the sum of P296,302.73 MAIN CONTENTION: Taxes imposed by the Income Tax Law are upon income
Subsequently, Marfirgal submitted a claim, which stated that said P296K did not and NOT upon capital and property
represent his income for the year 1914 That the fact that Madrigal was a married man, and his marriage
Rather, it was the income of the conjugal partnership between himself and his contracted under the provisions governing the conjugal partnership, has
wife, Paterno no bearing on income considered as income, and
Argued that in computing and assessing the additional income tax under That the distinction must be drawn between the ordinary form of
the Income Tax Law, the income declared by him should be divided into commercial partnership and the conjugal partnership of spouses
two equal parts, ½ to be considered his income, and the other half resulting from the relation of marriage.
Paterno’s CFI found in favor of the Collector, Rafferty
The issue was submitted to the Attorney-General of the Philippine Islands
March 17, 1915: The Attorney-General issued an opinion, wherein he ruled in favor ISSUE/S & RATIO:
of Madrigal 1. W/N Additional income tax should be divided into two equal parts, because of
The revenue officers forwarded said opinion to Washington for a decision by the the conjugal partnership existing between Madrigal and Paterno – NO
U.S. Treasury Department The background of the Income Tax Law is that the income tax is supposed to
The U.S. Commissioner of Internal Revenue reversed the opinion of the Attorney- reach the earnings of the entire non governmental property of the country
General, and decided against Madrigal’s claim A tax on income is NOT a tax on property
Madrigal made paid P9,668.21 under protest Income as contrasted with capital or property is to be the test
The Collector, James Rafferty, dismissed Madrigal’s protest CAPITAL INCOME
Madrigal and Paterno filed an action in the CFI of Manila against Rafferty and the A fund of property A flow of services rendered by a fund of capital
Deputy Collector for the recovery of the sum of P3.786.08 existing at an instant of by the payment of money from it, or
Said amount is alleged to have been wrongfully and illegally assessed and time by any other benefit rendered by a fund
collected by the CIR from Madrigal under the provisions of the Income Tax Law of capital
Argued that there would have been due and payable by each of the plaintiffs Wealth Service of wealth
the sum of P2,921.09 The tree The fruit: profits or gains
Which taken together amounts to a total of P5,842.18 instead of US Treasury Dept. general observations on the returns by husband and wife under
P9,668.21, erroneously and unlawfully collected from the plaintiff Vicente the Income Tax Law
Madrigal The husband, as the head and legal representative of the household and general
With the result that plaintiff Madrigal has paid ' as income tax for the year custodian of its income, should make and render the return of the aggregate
1914, P3,786.08, in excess of the sum lawfully due and payable. income of himself and wife
MAIN CONTENTION: Additional income tax should be divided into two equal For the purpose of levying the income tax, it is assumed that he can ascertain the
parts, because of the conjugal partnership existing between them, based upon total amount of said income.
the provisions of the Civil Code establishing the sociedad de gananciales.
If a wife has a separate estate managed by herself as her own separate provisions in our Civil Code dealing with the conjugal
property, and receives an income of more than $3,000, she may make partnership, and having no application to the Income Tax Law.
return of her own income, and The aims and purposes of the Income Tax Law must be given effect.
If the husband has other net income, making the aggregate of both incomes The Income Tax Law was drafted by the Congress of the United States
more than $4,000: and has been by the Congress extended to the Philippine Islands.
The wife's return should be attached to the return of her husband, or "The statute and the regulations promulgated in accordance therewith
His income should be included in her return, in order that a deduction provide that each person of lawful age (not excused from so doing)
of $4,000 may be made from the aggregate of both incomes. having a net income of $3,000 or over for the taxable year shall make
The tax in such case, however, will be imposed only upon so much of a return showing the facts;
the aggregate income of both as shall exceed $4,000. o that from the net income so shown there shall be deducted
If either husband or wife separately has an income equal to or in excess of $3,000 where the person making the return is a
$3,000, a return of annual net income is required under the law single person, or married and not living with consort,
Such return must include the income of both and
In such case the return must be made even though the combined $1,000 additional where the person making the
income of both be less than $4,000. return is married and living with consort;
If the aggregate net income of both exceeds $4,000, an annual o But that where the husband and wife both make returns (they
return of their combined incomes must be made in the manner living together), the amount of deduction from the aggregate
stated, although neither one separately has an income of $3,000 per of their several incomes shall not exceed $4,000.
annum. "The only occasion for a wife making a return is where:
They are jointly and separately liable for such return and for the o Where she has income from a sole and separate estate in
payment of the tax. excess of $3,000, or
The single or married status of the person claiming the specific o Where the husband and wife neither separately have an
exemption shall be determined as of the time of claiming such income of $3,000, but together they have an income in
exemption if such claim be made within the year for which return is excess of $4,000, in which latter event either the husband or
made, otherwise the status at the close of the year wife may make the return but not both.
Provisions of the CC on Conjugal Partnership In all instances the income of husband and wife
The court, in speaking of the conjugal partnership, has decided that "prior to the whether from separate estates or not, is taken as a
liquidation, the interest of the wife, and in case of her death, of her heirs, is an whole for the purpose of the normal tax.
interest inchoate, a mere expectancy o Where the wife has income from a separate estate and makes return
Constitutes neither a legal nor an equitable estate, and thereof, or where her income is separately shown in the return made by
Does not ripen into title until there appears that there are assets in the her husband, while the incomes are added together for the purpose of
community as a result of the liquidation and settlement the normal tax they are taken separately for the purpose of the
APPLICATION IN THE CASE: Susana Paterno, wife of Vicente Madrigal, has an additional tax.
inchoate right in the property of her husband Vicente Madrigal during the life of o In this case, however, the wife has no separate income within the
the conjugal partnership contemplation of the Income Tax Law.
She has an interest in the ultimate property rights and in the ultimate o The separate estate of a married woman within the
ownership of property acquired as income after such income has contemplation of the Income Tax Law is that which belongs to
become capital. her solely and separate and apart from her husband, and
over which her husband has no right in equity. It may consist
(IMPT!!) Susana Paterno has no absolute right to one-half the income
of lands or chattels.
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
DISPOSITIVE PORTION
which would arise by reason of the additional tax.
We conclude that the judgment should be as it is hereby affirmed with costs against
SC RULING: As she has no estate and income, actually and legally vested in her
appellants
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.
Moreover, the Income Tax 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