FREDERICK C. FISHER v. WENCESLAO TRINIDAD, GR No.
17518, 1922-10-30 The New Standard Dictionary, edition of 1915, defines an income as "the amount of... money
Facts:
Philippine American Drug Company was a corporation- duly organized and existing under the
laws of the Philippine Islands, doing business in the city of Manila... ppellant was a
stoekohlder in said corporation; that said corporation, as a... result of the business for that
year, declared a "stock dividend;... proportionate share of said stock dividend of the
appellant was P24,800... the appellant,... upon demand of the appellee, paid, under protest,
and involuntarily, unto the appellee the sum of P889.91 as income tax on said stock dividend.
recovery of that sum (P889.91) the present action was instituted... appellant cites and relies
on some decisions of the Supreme Court of the United States
In each of said cases an effort was made to collect an "income tax" upon "stock dividends"
and in each case it was held that "stock dividends" were capital and not an "income" and
therefore not subject to the "income tax" Jaw.
The appellee admits the doctrine established in the case of Eisner vs. Macomber (252 U. S.,
189), that a "stock dividend" is not "income" but argues that said Act No. 2833, in imposing
the tax on the stock dividend, does not violate the provisions of the Jones Law.
further argues that the statute of the United States providing for tax upon stock dividends is
different from the statute of the Philippine Islands, and therefore the decision of the
Supreme Court of the United States should not be followed in interpreting the statute... in
force here.
It will be rioted from a reading of the provisions of the two laws above quoted that the writer
of the law of the Philippine Islands must have had before him the statute of the United
States. No important argument can be based upon the slight difference in the wording of the
two... sections.
There is no question that the Philippine
Legislature may provide for the payment of an income tax, but it cannot, under the guise of
an income tax, collect a tax on property which is not an "income." The Philippine Legislature
cannot impose a tax upon "property" under a law which provides for a tax upon "income"
only.
The Philippine Legislature has no power to provide a tax upon "automobiles" only, and under
that law collect a tax upon a carreton or bull cart.
A statute providing for an income tax cannot be construed to cover property which is not, in
fact, income. The Legislature cannot, by a... statutory declaration, change the real nature of a
tax which it imposes. A law which imposes an importation tax on rice only cannot be
construed to impose an importation tax on corn.
Issues:
Are the "stock dividends" in the present case "income" and taxable as such under the
provisions of section 25 of Act No. 2833 ?
Ruling:
stock dividends represent undistributed increase in the capital of corporations or firms, joint
stock companies, etc., etc., for a particular period.
used to show the... increased interest or proportional share in the capital of each
stockholder.
the inventory of the property of the corporation, etc., for a particular period shows an
increase in its capital, so that the stock theretofore issued does not show the real value of
the... stockholder's interest, and additional stock is issued showing the increase in the actual
capital, or property, or assets of the corporation, etc.
coming to a person or corporation within a specified time whether as payment for services,
interest, or profit from investment."
Webster's International Dictionary defines an income as "the receipts, salary; especially, the
annual receipts of a private person or a... corporation from property."
Bouvier, in his law dictionary, says that an "income" in the federal constitution and income
tax act, is used in its common or ordinary meaning and not in its technical or economic sense.
Mr. Black, in his law... dictionary, says: "An income is the return in money from one's
business, labor, or capital invested ; gains, profit, or private revenue." "An income tax is a tax
on the yearly profits arising from property, professions, trades, and offices."
Gray vs. Darlington (82 U. S., 63), said in speaking of income that mere advance in value in no
sense constitutes the "income"
Such advance constitutes and can be treated merely as an increase of capital.
Mr. Justice Hughes
"income" in an income... tax law, unless it is otherwise specified, to mean cash or its
equivalent. It does not mean choses in action or unrealized increments in the value of the
property
Towne vs. Eisner, supra, Mr, Justice Holmes
'A... stock dividend really takes nothing from the property of the corporation, and adds
nothing to the interests of the shareholders. Its property is not diminished and their interests
are not increased. * * * The proportional interest of each shareholder remains the same. * *
*' In... short, the corporation is no poorer and the stockholder is no richer than they were
before.
Mr. Justice Pitney
Eisner vs. Macomber
"An income may be defined as the gain derived from capital, from labor, or from both
combined, provided it be understood to include profit gained through a sale... or conversion
of capital assets.
when stock dividends are declared, the corporation or company acknowledges a liability, in
form, to the stockholders
If profits have been made by the... corporation... they create additional bookkeeping
liabilities under the head of "profit and loss,"
None of these, however, gives to the stockholders as a body, much less to any... one of them,
either a claim against the going concern or corporation, for any particular sum of money, or a
right to any particular portion of the asset, or any share unless or until the directors conclude
that dividends shall be made and a part of the company's assets... segregated from the
common fund for that purpose.
The dividend normally is payable in money and when so paid, then only does the stockholder
realize a profit or gain, which becomes his separate property, and thus derive an income
from the capital that he has invested. Until that... is done the increased assets belong to the
corporation and not to the individual stockholders.
When a corporation or company issues "stock dividends" it 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.
it tends rather to postpone said realization, in that the fund represented by the new stock
has been transferred from surplus to assets, and no longer is available for actual distribution.
The essential and controlling fact is... that the stockholder has received nothing out of the
company's assets for his separate use and benefit
The stockholder who receives a stock dividend has received nothing but a representation of
his increased interest in the capital of the corporation.
There has been no separation or segregation of his interest.
All the property or capital of the corporation still belongs to... the corporation.
no separation of the interest of the stockholder from the general capital of the corporation
The stockholder, by virtue of the stock dividend, has no separate or individual control over
the interest represented thereby, further than he had before... the stock dividend was issued
He cannot use it for the reason that it is still the property of the corporation
A certificate of stock represented by the stock dividend is simply a statement of his
proportional... interest or participation in the capital of the corporation.
We believe that the Legislature, when it provided for an "income tax," intended to tax only
the "income" of corporations, firms, or individuals, as that term is generally used in its
common acceptation;... that the income means money received, coming to a person or
corporation for services, interest, or profit from investments.
We do not believe that the Legislature intended that a mere increase in the value of the
capital or assets of a corporation, firm, or individual,... should be taxed as "income."
Mr. Justice Pitney, in the case of Eisner vs. Macomber
"That the fudamental relation of 'capital' to 'income' has been much discussed by
economists, the former being likened to the tree or the... land, the latter to the fruit or the
crop... the former depicted as a reservoir supplied from springs; the latter as the outlet
stream, to be measured by its flow during a period of time."
There is a clear distinction between an extraordinary cash dividend, no matter when earned,
and stock dividends declared, as in the present case.
The one is a disbursement to the stockholder of accumulated earnings, and the corporation
at once parts irrevocably with all... interest thereon. The other involves no disbursement by
the corporation. It parts with nothing to the stockholder.
The latter receives, not an actual dividend, but certificate of stock which simply evidences his
interest in the entire capital, including such as by investment of... accumulated profits has
been added to the original capital.
They are not income to him, but represent additions1 to the source of his income, namely,
his invested capital.
Gibbons vs. Mahon
The ownership of that property is in... the corporation, and not in the holders of shares of its
stock.
DeKoven vs. Alsop
Mr. Justice Wilkin said: "A dividend is defined as 'a corporate profit set aside, declared, and
ordered by the directors to be paid to the stockholders on demand or at a fixed time. Until
the dividend is... declared, these corporate
profits belong to the corporation, not to the stockholders, and are liable for corporate
indebtedness.'"
When a cash dividend is declared and paid to the... stockholders, such cash becomes the
absolute property of the stockholders and cannot be reached by the creditors of the
corporation in the absence of fraud. A stock dividend, however, still being the property of the
corporation, and not of the stockholder, it may be reached by... an execution against the
corporation, and sold as a part of the property of the corporation
The rule is well established that cash dividends, whether large or small, are regarded as
"income"... and all stock dividends, as capital or assets.
if the holder of the stock... dividend is required to pay an income tax on the same, the result
would be that he has paid a tax upon an income which he never received. Such a conclusion
is absolutely contradictory to the idea of an income. An income subject to taxation under the
law must be an actual income... and not a promised or prospective income.
The appellee emphasizes the "income from dividends." Of course, income received as
dividends is taxable as an income, but an income from "dividends" is a very different thing
from a receipt of a "stock dividend." One is... an actual receipt of profits; the other is a
receipt of a representation of the increased value of the assets of a corporation.
Yuck imperyalismo
In- asmuch, however, as appeals may be taken... from this court to the Supreme Court of the
United States, we feel bound to follow the same doctrine announced by that court.
"stock dividends" are not "income," the same cannot be taxed under that provision of Act
No, 2833 which provides for a tax upon income.
Under the guise of an income tax, property which is not an... income cannot be taxed.
Principles:
We believe that the Legislature, when it provided for an "income tax," intended to tax only
the "income" of corporations, firms, or individuals, as that term is generally used in its
common acceptation; that... is, that the income means money received, coming to a person
or corporation for services, interest, or profit from investments. We do not believe that the
Legislature intended that a mere increase in the value of the capital or assets of a
corporation, firm, or individual,... should be taxed as "income."
"That the fudamental relation of 'capital' to 'income' has been much discussed by
economists, the former being likened to the tree or the... land, the latter to the fruit or the
crop; the former depicted as a reservoir supplied from springs; the latter as the outlet
stream, to be measured by its flow during a period of time."
When a cash dividend is declared and paid to the... stockholders, such cash becomes the
absolute property of the stockholders and cannot be reached by the creditors of the
corporation in the absence of fraud. A stock dividend, however, still being the property of the
corporation, and not of the stockholder, it may be reached by... an execution against the
corporation, and sold as a part of the property of the corporation.
The rule is well established that cash dividends, whether large or small, are regarded as
"income"... and all stock dividends, as capital or assets.
if the holder of the stock... dividend is required to pay an income tax on the same, the result
would be that he has paid a tax upon an income which he never received. Such a conclusion
is absolutely contradictory to the idea of an income. An income subject to taxation under the
law must be an actual income... and not a promised or prospective income.
The appellee emphasizes the "income from dividends." Of course, income received as
dividends is taxable as an income, but an income from "dividends" is a very different thing
from a receipt of a "stock dividend." One is... an actual receipt of profits; the other is a
receipt of a representation of the increased value of the assets of a corporation.
"stock dividends" are not "income," the same cannot be taxed under that provision of Act
No, 2833 which provides for a tax upon income. Under the guise of an income tax, property
which is not an... income cannot be taxed.
Fisher vs Trinidad G.R. No. 17518 October 30, 1922
Facts: In 1919, the Philippine American Drug Company was a corporation duly organized and
existing under the laws of the Philippine Islands where Fisher is a stockholder. On that
year, the Corporation declared stock dividends where Fisher’s proportionate share was
Php 24, 800. Later, Fisher paid under protest, upon demand if the CIR, the sum of Php
889.91 as income tax on said dividends. For the recovery of said amount, the present
action was instituted on the ground that stock dividends declared are not income in the
contemplation of the law.
Issue: Are the stock dividends considered as “income”, thus, taxable?
Held: No, stock dividends are not income, thus, the same cannot be taxed.
Income is the return in money from one’s business, labor or capital invested; gains, profit
or private revenue. It presupposes that a person realized the income or actually received it. It
deos not mean mere advance in value or unrealized increments in the value of the property.
On the other hand, stock dividends represent undistributed increase in the capital of a
corporation or firms for a particular period. They are used to show the increased interests or
proportional share in the capital of each shareholder. When a company issues it, it means
that
the company’s accumulated profits have been capitalized instead of being distributed to the
stockholders. Thus, it means that far from being a realization of profits, it tends
rather to
postpone said realization. The essential and controlling fact is that the stockholder, like that
of
Fisher, has received or realized nothing out of the company’s assets. Stock dividends then are
not contemplated under the term “income” as money received, coming to a
person or
corporation for services, interests or profit from investments.
Thus, the stock dividends are not income and not taxable
Fisher vs Trinidad G.R. No. 17518 October 30, 1922
Facts: In 1919, the Philippine American Drug Company was a corporation duly organized and
existing under the laws of the Philippine Islands where Fisher is a stockholder. On that
year, the Corporation declared stock dividends where Fisher’s proportionate share was
Php 24, 800. Later, Fisher paid under protest, upon demand if the CIR, the sum of Php
889.91 as income tax on said dividends. For the recovery of said amount, the present
action was instituted on the ground that stock dividends declared are not income in the
contemplation of the law.
Issue: Are the stock dividends considered as “income”, thus, taxable?
Held: No, stock dividends are not income, thus, the same cannot be taxed.
Income is the return in money from one’s business, labor or capital invested; gains, profit
or private revenue. It presupposes that a person realized the income or actually received it. It
deos not mean mere advance in value or unrealized increments in the value of the property.
On the other hand, stock dividends represent undistributed increase in the capital of a
corporation or firms for a particular period. They are used to show the increased interests or
proportional share in the capital of each shareholder. When a company issues it, it means
that
the company’s accumulated profits have been capitalized instead of being distributed to the
stockholders. Thus, it means that far from being a realization of profits, it tends
rather to
postpone said realization. The essential and controlling fact is that the stockholder, like that
of
Fisher, has received or realized nothing out of the company’s assets. Stock dividends then are
not contemplated under the term “income” as money received, coming to a
person or
corporation for services, interests or profit from investments.
Thus, the stock dividends are not income and not taxable
INTRODUCTION
Fisher vs Trinidad G.R. No. 17518 October 30, 1922
Facts: In 1919, the Philippine American Drug Company was a corporation duly organized and
existing under the laws of the Philippine Islands where Fisher is a stockholder. On that
year, the Corporation declared stock dividends where Fisher’s proportionate share was
Php 24, 800. Later, Fisher paid under protest, upon demand if the CIR, the sum of Php
889.91 as income tax on said dividends. For the recovery of said amount, the present
action was instituted on the ground that stock dividends declared are not income in the
contemplation of the law.
Issue: Are the stock dividends considered as “income”, thus, taxable?
Held: No, stock dividends are not income, thus, the same cannot be taxed.
Income is the return in money from one’s business, labor or capital invested; gains, profit
or private revenue. It presupposes that a person realized the income or actually received it. It
deos not mean mere advance in value or unrealized increments in the value of the property.
On the other hand, stock dividends represent undistributed increase in the capital of a
corporation or firms for a particular period. They are used to show the increased interests or
proportional share in the capital of each shareholder. When a company issues it, it means
that
the company’s accumulated profits have been capitalized instead of being distributed to the
stockholders. Thus, it means that far from being a realization of profits, it tends
rather to
postpone said realization. The essential and controlling fact is that the stockholder, like that
of
Fisher, has received or realized nothing out of the company’s assets. Stock dividends then are
not contemplated under the term “income” as money received, coming to a
person or
corporation for services, interests or profit from investments.
Thus, the stock dividends are not income and not taxable.
Fisher vs Trinidad G.R. No. 17518 October 30, 1922
Facts: In 1919, the Philippine American Drug Company was a corporation duly organized
andexisting under the laws of the Philippine Islands where Fisher is a stockholder. On
thatyear, the Corporation declared stock dividends where Fisher’s proportionate share
wasPhp 24, 800. Later, Fisher paid under protest, upon demand if the CIR, the sum of
Php889.91 as income tax on said dividends. For the recovery of said amount, the
presentaction was instituted on the ground that stock dividends declared are not income in
thecontemplation of the law.Issue: Are the stock dividends considered as “income”, thus,
taxable?Held: No, stock dividends are not income, thus, the same cannot be taxed.Income is
the return in money from one’s business, labor or capital invested; gains, profitor private
revenue. It presupposes that a person realized the income or actually received it. Itdeos not
mean mere advance in value or unrealized increments in the value of the property.On the
other hand, stock dividends represent undistributed increase in the capital of acorporation or
firms for a particular period. They are used to show the increased interests orproportional
share in the capital of each shareholder. When a company issues it, it means thatthe
company’s accumulated profits have been capitalized instead of being distributed to
thestockholders. Thus, it means that far from being a realization of profits, it tends
rather topostpone said realization. The essential and controlling fact is that the stockholder,
like that ofFisher, has received or realized nothing out of the company’s assets. Stock
dividends then arenot contemplated under the term “income” as money received,
coming to a person or corporation for services, interests or profit from investments.
Thus, the stock dividends are not income and not taxable.
MADRIGAL VS. RAFFERTY- DIFFERENCE BETWEEN CAPITAL AND INCOME
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: Whether or not 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.