Madrigal v.

Rafferty,
38 Phil 414, 7 Aug. 1918

FACTS:
Vicente Madrigal and his wife Susana Paterno were married and had conjugal
partnership as their marriage settlement. Sometime in 1915 Vicente filed a sword
declaration with the Collector of Interna Revenue, showing as his total net income for
the year 1914, the sum of P296,302.73. Said amount was in fact income of the conjugal
partnership and that in computing and assessing the additional income tax, the income
declared by Vicente should be divided into 2 equal parts: one-half to be considered the
income of Vicente and the other half of Susana.
The general question had in the meantime been submitted to the Attorney-General of
the Philippines, who in an opinion held with the petitioner Madrigal. The revenue officers
being still unsatisfied, the correspondence together with this opinion was forwarded to
Washington for a decision by the United States Treasury Department. The United
States Commissioner of Internal Revenue reversed the opinion of the Attorney-General,
and thus decided against the claim of Madrigal.
Vicente paid under protest which was decided adversely by the Collector of Internal
revenue. This prompted Madrigal and his wife to bring the matter in the CFI of Manila
against Collector of Internal Revenue and Deputy Collector of Internal Revenue, for the
recovery of the P3,7686.08, alleged to have been wrongfully and illegally collected by
the defendant from plaintiff according to Vicente, under the provisions of the Income
Tax Law.
The burden of the complaint was that if the income tax for the year 1914 had been
correctly and lawfully computed there would have been due payable by each of the
plaintiffs the sum of P2,921.09, which taken together amounts of a total of P5,842.18
instead of P9,668.21, erroneously and unlawfully collected from the plaintiff Vicente
Madrigal, with the result that plaintiff Madrigal has paid as income tax for the year 1914,
P3,786.08, in excess of the sum lawfully due and payable. The trial court ruled in favor
of defendants-respondents.
ISSUE:
Whether capital is synonymous with income.
HELD:
No. 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
an income. Capital is wealth, while income is the service of wealth.