Fisher v. Trinidad
G.R. No. L-17518 October 30, 1922
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Right to bring action, acquire and possess property --- relate with Art. 46 of NCC)
That during the year 1919 the 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; that he appellant was a stockholder in said corporation; that said corporation, as result of the business for that year, declared a "stock dividend"; that the proportionate share of said stock divided of the appellant was P24,800; that the stock dividend for that amount was issued to the appellant; that thereafter, in the month of March, 1920, the appellant, upon demand of the appellee, paid under protest, and voluntarily, unto the appellee the sum of P889.91 as income tax on said stock dividend. For the recovery of that sum (P889.91) the present action was instituted. The defendant demurred to the petition upon the ground that it did not state facts sufficient to constitute cause of action. The demurrer was sustained and the plaintiff appealed.
Whether or not the income received as dividends is taxable as an income?
Generally speaking, stock dividends represent undistributed increase in the capital of corporations or firms, joint stock companies, etc., etc., for a particular period. They are used to show the increased interest or proportional shares in the capital of each stockholder. In other words, the inventory of the property of the corporation, etc., for 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.
Having reached the conclusion, supported by the great weight of the authority, that "stock dividends" are not "income," the same cannot be taxes 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. When the assets of a corporation have increased so as to justify the issuance of a stock dividend, the increase of the assets should be taken account of the Government in the ordinary tax duplicates for the purposes of assessment and collection of an additional tax.