Fisher vs.

Trinidad
J. Johnson

Facts:
 Philippine American Drug Company (PADC) was a corporation doing business in Manila
o Fisher was a stockholder
 PADC declared stock dividends
o Fisher’s share in the dividends declared was ₱ 24,800
o Paid, under protest, ₱889.91 as income tax on the dividends received
 Fisher’s argument: Stock dividends were capital and not income, thus, not subject to income tax.
(Eisner vs. Macomber, US Case)
 Collector of Internal Revenue: Act. 2833 imposing the tax on the stock dividend does not violate
the provisions of the Jones Law
o Different statute in the US and the Philippines.

1. Issue: W/N the “stock dividends” in the present case “income” and taxable as such under the
provisions of Sec. 25 of Act. No. 2833
a. Minute difference between the US and the Philippine Law (But we still need to prove
that stock dividends are indeed income)
i. US: That the term "dividends" as used in this title shall be held to mean any
distribution made or ordered to made by a corporation, . . . which stock
dividend shall be considered income, to the amount of its cash value.
ii. Philippines: The term "dividends" as used in this Law shall be held to mean any
distribution made or ordered to be made by a corporation, . . . out of its
earnings or profits accrued since March first, nineteen hundred and thirteen,
and payable to its shareholders, whether in cash or in stock of the corporation, .
. . . Stock dividend shall be considered income, to the amount of the earnings or
profits distributed.
b. Stock dividends – represent undistributed increase in the capital of corporations or
firms, joint stock companies, etc. for a particular period.
i. Increase in interest or proportional share in the capital of each stockholder
ii. Example: A and B form a corporation for the operation of a drugstore. They
invest 1,000 each. At the end of the first year, the total assets (without cash and
without withdrawing/infusing additional capital) amount to 4,000.
1. This means that all they received were reinvested in the company.
2. 2,000 is still taxable
iii. Example 2: C & D form a corporation for agricultural purposes @ 5,000 each and
at the end of the year, the interest in the corporation increased to 20,000 (cattle
reproduced).
1. They declare stock dividends
2. They did not receive money or sell the cattle.
iv. Example 3: A buys a farm with cattle for 10,000. At the end of the year, value of
the farm and cattle is 20,000.
1. A is not a corporation
2. Is this income? What’s the difference with Example 2?
c. Definitions of income (NOTES)
d. Bookkeeping purposes: Stockholders only realize a gain or profit when the dividend is
paid in money. Until that is done, the increased assets belong to the corporation.
 i. When a corporation or company issues “stock dividends”
1. Company’s accumulated profits are capitalized instead of distributed to
the stockholder or retained as surplus available for distribution.
2. Postpones the realization of profits of the stockholder.
3. Stockholder has received nothing that answers the definition of an
income.
4. No separation or segregation of his interest.
5. All the property still belongs to the corporation.

e. Income tax intended to tax only income of corporations, firms or individuals, as that
term is generally used in its common acceptation.
i. INCOME MEANS MONEY RECEIVED COMING TO A PERSON OR CORPORATION
FOR SERVICES, INTEREST, OR PROFIT FROM INVESTMENTS.
ii. Ownership of property is still with the corporation, then it cannot be income
to the stockholder
iii. Akin to paying a tax upon income he never received
iv. Income subject to taxation must be actual income and not a promised or
prospective income.
v. Act. No 2833 only permitted a tax upon income from dividends, and stock
dividends are not the ones meant to be taxed by the Act since the latter is not
a receipt of profit but merely a receipt of a representation of the increased
value of the assets of a corporation.
vi. Therefore, stock dividends are not income and cannot be taxed under Act. No.
2833

f. Cash dividend vs. Stock dividend:

i. Cash - actual parting of corporate assets to the stockholders
ii. Stock – certificate of stock which simply evidences his interest in the entire
capital; parts with nothing to the stockholder; NOT INCOME
g. NOTES:
i. New Standard Dictionary: Amount of money coming to a person or corporation
within a specified time whether as payment of services, interest or profit from
investment.
ii. Websters: The receipt, salary; especially, the annual receipts of a private person
or a corporation from property.
iii. Bouvier: 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.
iv. Black: The return in money of one’s business, labor, or capital invested; gains;
profit, or private revenue.
v. Gray vs. Darlington: mere advance in value in no sense constitutes the "income"
specified in the revenue law as "income" of the owner for the year in which the
sale of the property was made. Such advance constitutes and can be treated
merely as an increase of capital.
vi. Towne vs. Eisner: "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.
1. 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 interest 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 then
they were before.
vii. Doyle vs. Mitchell Bros. Co.: importing something distinct from principal or
capital and conveying the idea of gain or increase arising from corporate activity
viii. Eisner vs. Macomber: 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.