FACTS:

Vicente Madrigal and Susana Paterno were married with Conjugal Partnership  as their property relations.Vicente filed his 1914 income tax return but later claimed a refund on the contention that it was the income of the conjugal partnership. Vicente claimed that the income should be divided into two with each spouse filing a separate return.Hence, Vicente claimed that each spouse should be entitled to the P8,000 exemption, which would result in a lower amount of income tax due.

ISSUE:

Define Income Tax

RULING:

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.

A tax on income is not a tax on property. Income can be defined as profits or gains. Susana, has an inchoate right in the property of her husband during the life of the conjugal partnership.Her interest in the ultimate property rights and in the ultimate ownership of property acquired as income lies after such income has become capital.She has no absolute right to ½ the income of the conjugal partnership.Not being seized of a separate estate, Susana 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 the wife for purposes of the additional tax.