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

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 two.
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:
Whether or not the income reported by Madrigal on 1915 should be divided into 2 in computing
for the additional income tax.

RULING:
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 two.