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Baniqued: Income in the NIRC is an enumeration. If its not found in Sec. 32 is it income? It
could be. Including but not limited to is the wording of the law.
Doctor and Lawyer barters services, is that income? Is that taxable? This is very difficult to
monitor.
Income means all wealth which flows into the taxpayer other than as a mere return of
capital. An example of a mere return of capital is the payment of loans receivable. Income
can also mean as a flow of the fruits of ones labor
Income includes earnings, lawfully or unlawfully acquired, without consensual recognition,
express or implied, of an obligation to repay and without restriction as their disposition.
As a general rule, mere increase in the value of property is NOT income but merely an
unrealized increase in capital. No income is derived by the owner until after the actual sale
of the property in excess of its original cost. (De Leon)
*Fisher vs. Trinidad: 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 an income. Capital is
wealth, while income is the service of wealth. 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.
*Conwi v. CTA: Income may be defined as an amount of money coming to a person or
corporation within a specified time, whether as payment for services, interest or profit from
investment. Unless otherwise specified, it means cash or its equivalent. Income can also be
though of as flow of the fruits of one's labor.
*CIR v. Tours Specialist: W/N amounts received by a local tourist and travel agency
included in a package fee from tourists or foreign tour agencies, intended or earmarked for
hotel accommodations form part of gross receipts subject to 3% contractors tax
Gross receipts subject to tax under the Tax Code do not include monies or receipts
entrusted to the taxpayer which do not belong to them and do not redound to the
taxpayers benefit. Parenthetically, the room charges entrusted by the foreign travel
agencies to the private respondents do not form part of its gross receipts within the
definition of the Tax Code. The said receipts never belonged to the private respondent. The
private respondent never benefited from their payment to the local hotels. This
arrangement was only to accommodate the foreign travel agencies.
*Eisner vs. Macomber: Income may be defined as the gain derived from capital, from labor,
or from both combined, including profit gained through sale or conversion of capital.
Mere growth or increment of value in a capital investment is not income; income is
essentially a gain or profit, in itself, of exchangeable value, proceeding from capital, severed
from it, and derived or received by the taxpayer for his separate use, benefit, and disposal.
Id.
A stock dividend, evincing merely a transfer of an accumulated surplus to the capital
account of the corporation, takes nothing from the property of the corporation and adds
nothing to that of the shareholder. A tax on such dividends is a tax an capital increase, and
not on income, and, to be valid under the Constitution, such taxes must be apportioned
according to population in the several states.
*James vs. US: The issue before us in this case is whether embezzled funds are to be
included in the "gross income" of the embezzler in the year in which the funds are
misappropriated. the obvious intent of that Congress to tax income derived from both legal
and illegal sources, to remove the incongruity of having the gains of the honest laborer
taxed and the gains of the dishonest immune
B. Realization
It is a separation from capital, resulting in receipt of income
*Eisner v. Macomber: A "stock dividend" shows that the company's accumulated profits
have been capitalized, instead of distributed to the stockholders or retained as surplus
available for distribution in money or in kind should opportunity offer. Far from being a
realization of profits of the stockholder, it tends rather to postpone such realization, in that
the fund represented by the new stock has been transferred from surplus to capital, and no
longer is available for actual distribution.
*Bachrach v. Seifert: It is true that profits realized are not dividends until declared by the
proper officials of the corporation, but distribution of profits, however made, in dividends,
and the form of the distribution is immaterial.
*Helvering v. Horst: The decisions and regulations have consistently recognized that receipt
in cash or property is not the only characteristic of realization of income to a taxpayer on
the cash receipts basis. Where the taxpayer does not receive payment of income in money
or property, realization may occur when the last step is taken by which he obtains the
fruition of the economic gain which has already accrued to him.
The enjoyment of the economic benefit accruing to him by virtue of his acquisition of the
coupons is realized as completely as it would have been if he had collected the interest in
dollars and expended them for any of the purposes named
In a real sense, he has enjoyed compensation for money loaned or services rendered, and
not any the less so because it is his only reward for them. To say that one who has made a
gift thus derived from interest or earnings paid to his donee has never enjoyed or realized
the fruits of his investment or labor because he has assigned them instead of collecting
them himself and then paying them over to the donee is to affront common understanding
and to deny the facts of common experience. Common understanding and experience are
the touchstones for the interpretation of the revenue laws.
The power to dispose of income is the equivalent of ownership of it. The exercise of that
power to procure the payment of income to another is the enjoyment, and hence the
realization, of the income by him who exercises it.
C. Imputed Income
Imputed income This reduces administrative difficulty. You cannot expect government
officials to monitor everything. Recall the Doctor and Lawyer example, it may be beyond the
capacity of the government to assess. As long as the transaction is personal in nature it
would be very difficult to monitor.
*Baniqued: There is a land owner, he then asks a building developer to put up a 5 storey
town house. There is no payment in cash, but Land owner will give him 2 units in the
townhouse. With regard to the contractor, there is compensation for services. What about
the landowner, does he derive income? NO. There is a building, an improvement. It is still
my capital. When will there be income? When you sell the building.
E. Windfall Receipts
G. Indirect Payments
*Baniqued: If the taxes were borne by the buyer (for example, Capital Gains Tax), this
would constitute additional income to the seller. If someone else paid it for you, then that is
income to you.
When you bear the obligation of someone, that is income to the other person. This is
discharge of a party of another obligation, will be an additional income to you.