VICENTE MADRIGAL and his wife, SUSANA PATERNO

vs.
JAMES J. RAFFERTY, Collector of Internal Revenue, and VENANCIO CONCEPCION,
Deputy Collector of Internal Revenue

G.R. No. L-12287 August 7, 1918

MALCOLM, J.:

CASE DIGEST BY: KIRSTIE BARRION

Facts:

Vicente Madrigal and Susana Paterno were legally. The marriage was contracted under the
provisions of law concerning conjugal partnerships (sociedad de gananciales.). On February 25,
1915, Vicente Madrigal filed sworn declaration with the Collector of Internal Revenue, showing,
as his total net income for the year 1914, the sum of P296,302.73. Subsequently Madrigal
submitted the claim that the said 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, and that in computing and assessing the additional income tax provided by the Act of
Congress of October 3, 1913, 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 of
Susana Paterno. The revenue officer was not satisfied with Madrigals explanation and
ultimately, the United States Commissioner of Internal Revenue decided against the claim of
Madrigal. Madrigal paid under protest, and the couple decided to recover the sum of P3,786.08
alleged to have been wrongfully and illegally assessed and collected by the CIR.

Issue: Whether or not the income reported by Madrigal on 1915 should be

divided into 2 in computing for the additional income tax because of the
conjugal partnership.

Held: The learned argument of counsel is mostly based upon the provisions
of the Civil Code establishing the sociedad de gananciales. The counter
contentions of appellees are that the taxes imposed by the Income Tax Law
are as the name implies taxes upon income tax and not upon capital and
property; that the fact that Madrigal was a married man, and his marriage
contracted under the provisions governing the conjugal partnership, has no
bearing on income considered as income, and that the distinction must be
drawn between the ordinary form of commercial partnership and the
conjugal partnership of spouses resulting from the relation of marriage.

The Supreme Court ruled against the Madrigals. To recapitulate, Madrigal

wants to divide into half his declared income in computing for his tax since
he is arguing that he has a conjugal partnership with his wife. However, the
court ruled that the one that should be taxed is the income which is the flow
of the capital, thus it should not be divided into 2.

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. 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 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 Income Tax Law must be given effect.

In connection with the decision above quoted, it is well to recall a few basic
ideas. The Income Tax Law was drafted by the Congress of the United States
and has been by the Congress extended to the Philippine Islands. Being thus
a law of American origin and being peculiarly intricate in its provisions, 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.