(38 Phil.) riage. Decision. plaint was that if the income tax for the year spouses resulting from the relation of mar.. 1914 had been correctly and lawfully computed there would have been due and payable by each of the plaintiffs the sum of P2,921.09, which taken together amounts to 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 answer of the defendants, together with an analysis of the tax declaration, the pleadings and the stipulation, sets forth the basis of defendants' stand in the following way: The income of Vicente Madrigal and his wife Susana Paterno for the year 1914 Iwas made up of three items: (1) P362,407.67, the profits made by Vicente Madrigal in his coal and shipping business; (2) P4,086.50, the profits made by Susana Paterno in her embroidery business; (3) P16,687.80, the profits made by Vicente Madrigal in a pawnshop company. The sum of these three items is P383,181.97, the gross income of Vicente Madrigal and Susana Paterno for the year 1914. General deductions were claimed and allowed in the sum of P86,879.24. The re sulting net income was P296,302.73. For the purpose of assessing the normal tax of one per cent. on the net income there were allowed as specific deductions the following: (1) P16,687.80, the tax upon which was to be paid at source, and (2) P8,000, the specific exemption granted to Vicente Madrigal and Susana Paterno, husband and wife. The remainder, P271,614.93 was the sum upon which the normal tax of one per cent. was assessed. The normal tax thus arrived at was P2,716.15. The dispute between the plaintiffs and the defendants concerned the additional tax provided for in the Income Tax Law. The trial court in an exhaustive decision found in favor of defendants, without costs. Issues. From the point of view of test of faculty in taxation, no less than five answers have been given in the course of history. The final stage has been the selection of income as the norm of taxation. See Seligman, “The Income Tax," Introduction. The Income Tax Law of the United States, extended to the Philippine Islands, is the result of an effort on the part of legislators to put into statutory form this canon of taxation and of social reform. The aim has been to mitigate the evils arising from inequalities of wealth by a progressive scheme of taxation, which places the burden on those best able to pay. To carry out this idea, public con-. siderations have demanded an exemption roughly equivalent to the minimum of subsistence. With these exceptions, the income tax is supposed to reach the earnings of the entire nongovernmental property of the country. Such is the background of the Income Tax Law. Income as contrasted with capital or property is to be the test. 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. See Fisher, "The Nature of Capital and Income." The Supreme Court of Georgia expresses the thought in the following figurative language: "The fact is that property is a tree, income is the fruit; labor is a tree, income the fruit; capital is a tree, income the fruit." Waring v. City of Savananh (1878) 60 Ga. 93. A tax on income is not a tax on property. "Income," as here used, can be defined as "profits or gains." London County Council The contentions of plaintiffs and appel-v. Attorney General, [1901] A. C. 26, 70 L. lants, having to do solely with the addition- J. K. B. N. S. 77, 83 L. T. N. S. 605, 49 al income tax is that it should be divided Week. Rep. 686, 4 Tax Cas. 265. See, further, into two equal parts, because of the con- Foster's Income Tax, second edition (1915) jugal partnership existing between them. chapter IV; Black on Income Taxes, second The learned argument of counsel is mostly edition (1915) chapter VIII; Gibbons v. Mahbased upon the provisions of the Civil Code on (1890) 136 U. S. 549; and Towne v. Eisner, establishing the sociedad de gananciales. decided by the United States Supreme Court The counter contentions of appellees are that January 7, 1918. the taxes imposed by the Income Tax Law are as the name implies taxes upon income 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 A regulation of the United States Treasury Department relative to returns by the hus band and wife not living apart, contains the following: "The husband, as the head and legal representative of the household and general custodian of its income, should make and render the return of the aggregate income of himself and wife, and for the purpose of levying the income tax it is assumed that he can ascertain the to (38 Phil.) 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 deal ing no application to the Income Tax Law. The aims and purposes of the Income Tax Law must be given effect. tal amount of said income. If a wife has a separate estate managed by herself as her own separate property, and receives an income of more than $3,000, she may make return of her own income, and if the husband has other net income, making the aggregate of both incomes more than $4,000, the wife's return should be attached to the return of her husband, or his income should be included in her return, in order that a deduction of $4,000 may be made from the aggregate of both incomes. The tax in such case, however, will be imposing with the conjugal partnership and haved only upon so much of the aggregate income of both as shall exceed $4,000. If either husband or wife separately has an income equal to or in excess of $3,000, a return of annual net income is required under the law, and such return must include the income of both, and in such case the return must be made even though the combined income of both be less than $4,000. If the aggregate net income of both exceeds $4,000, an annual return of their combined incomes must be made in the manner stated, although neither one separately has an income of $3,000 per annum. They are jointly and separately liable for such return and for the payment of the tax. The single or married status of the person claiming the specific exemption shall be determined as of the time of claiming such exemption if such claim be made within the year for which return is made, otherwise the status at the close of the year.' With these general observations relative 'to the Income Tax Law in force in the Philippine Islands, we turn for a moment to consider the provisions of the Civil Code dealing with the conjugal partnership. Recently in two elaborate decisions in which a long line of Spanish authorities were cited, this court, in speaking of the conjugal partnership, decided that: "Prior to the liquidation, the interest of the wife, and in case of her death, of her heirs. is an interest inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until there appears that there are assets in the community as a result of the liquidation and settleNable Jose v. Nable Jose (1916) 15 Off. Gaz. 871; Manuel and Laxamana v. Losano (1918) 16 Off. Gaz. 1265. ment.' The point we are discussing has heretofore been considered by the Attorney General of the Philippine Islands and the United States Treasury Department. The decision of the latter overruling the opinion of the Attorney General is as follows: "Treasury Department, Washington. "Income Tax. "Frank McIntyre, Chief, Bureau of Insular Affairs, War Department, Washington, D. C.— Sir: This office is in receipt of your letter of June 22, 1915, transmitting copy of correspondence 'from the Philippine authorities relative to the method of submission of income tax returns by married persons.' "You advise that 'the Governor General, in forwarding the papers to the Bureau, advises that the Insular Auditor has been authorized to suspend action on the warrants in question until an authoritative decision on the points raised can be secured from the Treasury Department.' "From the correspondence it appears that Gregorio Araneta, married and living with his wife, had an income of an amount sufficient to require the imposition of the additional tax provided by the statute; that the net income was properly computed and then both income and deductions and the specific exemption were divided in half and two returns made, one return for each half in the names respectively of the husband and wife, so that under the returns as filed there would be an escape from the additional tax; that Araneta claims the returns are correct on the ground that under the Philippine law his wife is entitled to half of his earnings; that Araneta has dominion over the income and under the Philippine law, the right to determine its use and disposition; that in this case the wife has no 'separate estate' within the contemplation of the Act of October 3, 1913, levying an income tax. 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 ac quired 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 office. "It appears further from the correspondence that upon the foregoing explanation, tax was assessed against the entire net income against Gregorio Araneta; that the tax was paid and an application for refund made, and that the application for refund was rejected, whereupon the matter was submitted to the Attorney General of the Islands who holds that the returns were correctly rendered, and that the refund should be allowed; and thereupon the question at issue is submitted through the Gov ernor General of the Islands and Bureau of Insular Affairs for the advisory opinion of this (38 Phil.) wife has income from a separate estate and makes return thereof, or where her income is separately shown in the return made by her husband, while the incomes are added together for the purpose of the normal tax they are taken separately for the purpose of the additional tax. In this case, however, the wife has no separate income within the contemplation of the Income Tax Law. "By paragraph M of the statute, its provi- | the purpose of the normal tax. Where the sions are extended to the Philippine Islands, to be administered as in the United States but by appropriate internal revenue officers of the Philippine government. You are therefore advised that upon the facts as stated, this office holds that for the federal income tax (Act of October 3, 1913) the entire net income in this case was taxable to Gregorio Araneta, both for the normal and additional tax, and that the application for refund was properly rejected. "Respectfully, "David A. Gates, Acting Commissioner." In connection with the decision above quot "The separate estate of a married woman within the contemplation of the Income Tax Law is that which belongs to her solely and sep-ed, it is well to recall a few basic ideas. arate and apart from her husband, and over which her husband has no right in equity. It may consist of lands or chattels. 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 "The statute and the regulations promulgated in accordance therewith provide that each person of lawful age (not excused from so doing) having a net income of $3,000 or over for the taxable year shall make a return showing the facts; that from the net income so shown there shall be deducted $3,000 where the person making the return is a single person, or married and not living with consort, and $1,000 additional where the person making the return is married and living with consort, but that where the husband and wife both make returns (they living together), the amount of deduc-y Cia (1907) 209 U. S. 338; In re Allen (1903) tion from the aggregate of their several incomes shall not exceed $4,000. "The only occasion for a wife making a return is where she has income from a sole and separate estate in excess of $3,000, or where the husband and wife neither separately have an income of $3,000, but together they have an income in excess of $4,000, in which latter event either the husband or wife may make the return but not both. In all instances the income of husband and wife whether from separate estates or not, is taken as a whole for its execution. U. S. v. Cerecedo Hermanos 2 Phil. 630; Government of the Philippine Islands v. Municipality of Binalonan, and Roman Catholic Bishop of Nueva Segovia (1915) 32 Phil. 534. We conclude that the judgment should be as it is hereby affirmed with costs against appellants. So ordered. TORRES, JOHNSON, CARSON, STREET, and FISHER, JJ., concur. Judgment affirmed. 4968 mandamus. The question presented in this proceeding is whether the relator is entitled as an abso lute right to be credited on an installment of an additional assessment of income tax for The judgment, which is a final one, was States. On or about May 12, 1922, the relator filed the Revenue Act of 1921 as section 1315 thereof, and pursuant to article 1051, Regulation 62, promulgated under authority of section 1303 of said Revenue Act. But, in the opinion of the court, section 1315 of the Act and article 1051 of the Regulations are designed to cover applications for the remission, refund or payment back of taxes erroneously or illegally assessed or collected, and to repay to a collector or other named officials such sums of money or damages recovered against him or them in any court. The relator has made no application of the character contemplated by the section and article, nor it seems was it necessary for it to do so. By the judgment that it recovered the erroneous or illegal character of the assessment paid under protest by it was finally adjudicated and when a little more than a month later it became obligated to pay an installment of income tax much larger than the amount of its judgment, it proceeded to do so by the wise and practical method of seeking that its much larger tax debt be credited with the amount of income tax previously paid by it under the protest, and which was, as admitted by the respondent herein, in excess of that then properly due. This, in the opinion of the court, was one of the situations intended by the Conwith the Collector a "credit claim" in which it demanded that the amount of said judg-visions of section 252 of the Revenue Act of gress to be covered by the mandatory proment be credited against the installment of income tax, due and payable by it on June 15, 1922. The relator relies on the provisions of the assertion of its claim herein. 1921, heretofore quoted. In seeking the credit, the relator was not, in a technical sense at least, seeking either a remission, re fund or payment back of the illegal tax exacted of it. Had it not been a taxpayer from whom there was due taxes, shortly The material provisions of that section are required to be paid, but was a judgment as follows: The respondent admits that if the claim of the relator had not been reduced to a judgment against the Collector to whom the protested additional assessment of income tax for 1913, was paid by it, the quoted provisions of Section 252 could have been invoked by the relator in the assertion of its claim to be credited with the amount of the protested payment. But being in judgment, he insists that the payment thereof can only be made pursuant to section 3220, Revised Statutes, as amended and re-enacted in and by creditor only, desiring to secure payment thereof, then it would have been compelled to proceed under section 1315 and article 1051 of the Treasury Regulations, dealing with the subject. Section 252 of the Revenue Act of 1921 provides a simple, direct mode for adjusting equitably the kind of a claim which the relator makes in this case. The statute is plain and compelling in its terms. Compliance with it will do justice to the relator in a manner which avoids circumlocution and does no violence to administrative policy. It requires a mere ministerial act on the part of the respondent and affords to the relator a relief for which there is no other adequate remedy. For the foregoing reasons the relator's demurrer to the respondent's answer must be sustained. And it is so ordered. |