I. MADRIGAL V.

RAFFERTY 38 PHIL 14;

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.

FACTS: Vicente Madrigal and Susana Paterno were legally married prior to Januray 1, 1914.
The marriage was contracted under the provisions of law concerning conjugal partnership

On 1915, Madrigal filed a declaration of his net income for year 1914, the sum of P296,302.73

Vicente Madrigal was contending that the said declared income does not represent his income
for the year 1914 as it was the income of his conjugal partnership with Paterno. He said that
in computing for his additional income tax, the amount declared should be divided by 2.

The revenue officer was not satisfied with Madrigal’s 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: W/N the income reported by Madrigal on 1915 should be divided into 2 in computing
for the additional income tax?

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.

To recapitulate, Vicente wants to 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.