1. The graduated tax rates on stock dividends imposed by Act
2833 of the Philippine Islands, as amended, apply only to
individuals, and the objection that they infringe the rule of
uniformity prescribed by the Organic Act is not available to a
corporation which has been taxed only at the flat rate. P.
279 U. S.
2. Neither can this objection be maintained by an individual who
fails to show the rate at which he was assessed or any facts to
support the suggestion that the required uniformity was lacking. P.
279 U. S.
3. The provision of the Organic Act that no bill shall embrace
more than one subject, which shall be expressed in the title, is
not violated by including in a bill entitled as establishing an
income tax, a tax on stock dividends, which is not strictly an
income tax. P. 279 U. S.
4. A former decision of the Supreme Court of the Philippine
Islands that stock dividends were not taxable as income under the
Act here under consideration held
not binding in this case
as a rule of property. P. 279 U. S.
5. The doctrine of stare decisis
does not apply with
full force prior to decision in the court of last resort,
not to a decision of
Page 279 U. S. 341
the Supreme Court of the Philippine which was reviewable by this
Court. P. 279 U. S.
6. The Philippine Legislature has power to lay a tax in respect
of the advantage resulting to recipients from the allotment and
& delivery of stock dividends. P. 279 U. S.
Certiorari, 278 U.S. 588, to review judgments of the Supreme
Court of the Philippine Islands sustaining recoveries of money
collected from the plaintiffs, respondents here, as taxes on stock
MR. JUSTICE BUTLER delivered the opinion of the Court.
Respondent sued petitioner in the Court of First Instance of
Manila to recover a tax alleged to have been illegally imposed on a
stock dividend. The tax was levied under Act 2833 of the Philippine
Islands, approved March 7, 1919, as amended by Act 2926, March 26,
1920. The provision here involved is substantially like that in §
2(a) of the Revenue Act of 1916 for the United States, which was
held invalid in Eisner v. Macomber, 252 U.
. The trial court deemed that and other decisions
of this Court authoritative, held the stock dividend was not
income, and gave judgment for plaintiff. Defendant appealed to the
supreme court. One of the justices was
Page 279 U. S. 342
disqualified because, as Attorney General, he had acted for the
defendant in this case. The appeal was submitted to the court
consisting of eight justices, who divided evenly. Then the case was
referred to the first division, consisting of five justices.
Section 138, Revised Administrative Code of 1917. The opinion of
the division, four justices concurring and one dissenting, upheld
the lower court, and thereupon the Supreme Court affirmed the
There was an agreed statement of facts, the substance of which
follows. Respondent is a British corporation authorized to carry on
business in the Philippine Islands. In 1923, it owned stock in a
domestic corporation and received a dividend of profits accruing
since March 1, 1913, which was paid by the company in its shares,
having a par value of 43,500 pesos. Petitioner, as Collector of
Internal Revenue, included the amount in respondent's income for
1923 and levied thereon the tax in question. Respondent paid under
protest, requested petitioner to refund the amount, and, that being
refused, brought this suit.
Section 1(a) imposes an annual normal tax of 3 percent upon the
net income of individuals, and § 1(b) provides that, in addition to
such tax, there shall be levied and paid upon such income graduated
surtaxes at specified rates.
Section 2(a) provides:
". . . The taxable net income of a person shall include gains,
profits, and income derived from salaries . . . also from . . .
dividends . . . or gains, profits and income derived from any
Section 10(a) provides:
"There shall be . . . paid annually upon the total net income
received in the preceding calendar year from all sources by every
corporation . . . a tax of three percentum upon such income . . .
including the income derived from dividends. . . . "
Page 279 U. S. 343
Section 25(a) provides:
"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."
The petitioner admits that, strictly speaking, a stock dividend
is not income. But he insists, and respondent concedes, that, in
the absence of constitutional restriction, such dividends may be
taxed. And the parties agree that the tax in question is within the
scope and intent of the statute.
The Supreme Court held that the tax on stock dividends is a
property tax, and that the graduated rates infringe the provision
of § 3 of the Organic Act of August 29, 1916, c. 416, 39 Stat. 545,
which declares that the rule of taxation in the Islands shall be
uniform. But, in this case, that point has no foundation in fact.
The graduated rates are applied and imposed only upon individuals.
Section 1(b). Corporations such as respondent are subject only to a
flat rate of 3 percent. Section 10(a). And that rate applied to the
stock dividend produced 1,305 pesos, the tax paid. The rule of
uniformity was not transgressed.
And, in support of the judgment below, it is insisted that the
provision imposing a tax upon stock dividends violates that clause
of § 3 of the Organic Act which declares: "That no bill which may
be enacted into law shall embrace more than one subject, and that
subject shall be expressed in the title of the bill."
Act 2833 is entitled:
"An act establishing the income tax, making other provisions
relating to said tax, and amending certain sections of act numbered
twenty-seven hundred and eleven."
The insular supreme court held
Page 279 U. S. 344
that the subject of the Act was not adequately expressed,
because a tax on stock dividends is one upon capital, while the
title specified only the income tax. But, in our opinion, that is
too strict a construction. Provisions in substance the same as that
above quoted are found in many state constitutions. The purpose is
to prevent the inclusion of incongruous and unrelated matters in
the same measure, and to guard against inadvertence, stealth and
fraud in legislation. When bills conform to such requirements,
their titles serve conveniently to apprise legislators and the
public of the subjects under consideration. Courts strictly enforce
such provisions in cases that fall within the reasons on which they
rest. But, as freedom required or convenient for the effective
exertion of the legislative power ought not unnecessarily or
lightly to be interfered with, the courts disregard mere verbal
inaccuracies, resolve doubts in favor of validity, and hold that,
in order to warrant the setting aside of enactments for failure to
comply with the rule, the violation must be substantial and plain.
Louisiana Southern Bank v. Pilsbury, 105 U.
, 105 U. S. 289
Montclair v. Ramsdell, 107 U. S. 147
107 U. S. 153
Read v. Plattsmouth, 107 U. S. 568
107 U. S. 578
City of South St. Paul v. Lamprecht Bros. Co.,
88 F. 449,
451. Johnson v. Harrison,
47 Minn. 575; Cooley's
Constitutional Limitations (7th ed.) p. 202 et seq.;
Sutherland, Statutory Construction (2d ed.) §§ 111, 115-118. The
Philippine income tax law was passed before our decision in
Eisner v. Macomber, supra.
The Revenue Acts of 1916 and
1918, after which that measure was patterned, treated stock
dividends as income. It was then well known by those giving
attention to that sort of taxation that Congress treated stock
dividends as taxable income. The inclusion of such distributions
within the meaning of "income" as used in taxing statutes was not
calculated or likely to mislead. The title was sufficient to notify
legislators and others interested that the bill might include
Page 279 U. S. 345
and tax stock dividends. Tax Commissioner v. Putnam,
227 Mass. 522, 531. And that form of property was not so unrelated
to the subject of the bill as expressed in the title that its
inclusion was within the mischief which the quoted provision of the
Organic Act was intended to prevent. The point cannot be
In Fisher v. Trinidad,
43 Phil. 973, the insular
supreme court held that stock dividends are not taxable as income
under the Act here under consideration. The opinion of the first
division in this case cites that decision and states that it has
become a rule of property. Respondent supports that view, argues
that the shareholders and the corporation had a right to rely on
that decision, and asserts that it disposes of the issues here
The question in that case arose upon demurrer to the complaint.
The decision was announced October 30, 1922. Subsequently, the
taxpayer withdrew his protest and the case was dismissed as moot
six months before this suit was commenced. 45 Phil. 751. The even
division of the eight justices and the opinion of the first
division in this case make it clear that the supreme court itself
did not consider the question of the taxability of stock dividends
as income to be foreclosed. The decisions of the highest court of
the Philippines on such questions are reviewable here. The doctrine
of stare decisis
does not apply with full force prior to
decision in the court of last resort. The circumstances negative
the claim that the case established any "rule of property."
Calhoun G. M. Co. v. Ajax G. M. Co.,
27 Colo. 1, 11.
Moreover, Fisher v. Trinidad
merely decided that "stock
dividends" are not taxable as "income" under the Act. Petitioner
does not combat that view or claim that such distributions do
constitute income. The Philippine Legislature has power to lay a
tax in respect of the advantage resulting to recipients from the
allotment and delivery of such dividend shares. Swan Brewing
Page 279 U. S. 346
 A.C. 231. Respondent rightly concedes that,
there being no constitutional restriction, such dividends may be
taxed and that the statute discloses a purpose to tax them. The
decision of this Court in Eisner v. Macomber
constitutional provisions not applicable to the Philippine
Respondent suggests no ground on which the judgment of the lower
court can be sustained.
Respondent sued petitioner in the court of first instance of
Manila to recover a tax on a stock dividend. That court held the
tax valid, but the Supreme Court reversed, following its decision
in No. 251.
Respondent owned capital stock in Menzi & Co., Inc., a
corporation organized under the laws of the Philippines. In 1923,
that company paid to respondent out of profits made after March 1,
1913, a dividend in stock of the par value of 50,000 pesos. The
collector included that amount in respondent's income for that
year, and, by reason of such inclusion, assessed and collected from
him a tax of 637.87 pesos.
This case differs from No. 251 in that here the taxpayer is an
individual subject to surtaxes on income while corporations are
subject to a flat rate. The Supreme Court held that, as stock
dividends do not constitute income, the tax is on property and that
therefore the specified graduated rates violate the rule of
uniformity. But the record does not disclose the rate at which the
tax was assessed or show any facts to support the suggestion that
the required equality was lacking.
In other respects, this case is the same as No. 251.