G.R. No. L-2348. February 27, 1950
GREGORIO PERFECTO, PLAINTIFF AND APPELLEE, VS. BIBIANO L. MEER, COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT.
BENGZON, J.:
Gregorio Perfecto to pay income tax upon his salary as member of this Court
during the year 1946. After paying the amount (P802), he instituted this action
in the Manila court of first instance contending that the assessment was
illegal, his salary not being taxable for the reason that imposition of taxes
thereon would reduce it in violation of the Constitution.
The Manila judge upheld his contention, and required the refund of the amount
collected. The defendant appealed.
The death of Mr. Justice Perfecto has
freed us from the embarrassment of passing upon the claim of a colleague. Still,
as the outcome indirectly affects all the members of the Court, consideration of
the matter is not without its vexing feature. Yet adjudication may not be
declined, because, (a) we are not legally disqualified; (b)
jurisdiction may not be renounced, as it is the defendant who appeals to this
Court, and there is no other tribunal to which the controversy may be referred;
(c) supreme courts in the United States have decided similar disputes
relating to themselves; (d) the question touches all the members of the
judiciary from top to bottom; and (e) the issue involves the rights of
other constitutional officers whose compensation is equally protected by the
Constitution, for instance, the President, the Auditor-General and the members
of the Commission on Elections. Anyway the subject has been thoroughly discussed
in many American lawsuits and opinions, and we shall hardly do nothing more than
to borrow therefrom and to compare their conclusions to local conditions. There
shall be little occasion to formulate new propositions, for the situation is not
unprecedented.
Our Constitution provides in its Article VIII, section 9, that the members of
the Supreme Court and all judges of inferior courts “shall receive such
compensation as may be fixed by law, which shall not be diminished during their
continuance in office”. It also provides that “until Congress shall provide
otherwise, the Chief Justice of the Supreme Court shall receive an annual
compensation of sixteen thousand pesos, and each Associate Justice, fifteen
thousand pesos”. When in 1945 Mr. Justice Perfecto assumed office, Congress had
not “provided otherwise”, by fixing a different salary for associate justices.
He received salary at the rate provided by the Constitution, i. e., fifteen
thousand pesos a year.
Now, does the imposition of an income tax upon this salary in 1946 amount to
a diminution thereof?
A note found at page 534 of volume 11 of the American Law Reports answers the
question in the affirmative. It says:
“Where the Constitution of a state provides that the salaries of its judicial
officers shall not be diminished during their continuance in office, it has been
held that the state legislature cannot impose a tax upon the compensation paid
to the judges of its court. New Orleans vs. Lea (1359) 14 La. Ann. 194;
Opinion of Attorney-General of N. C. (1S56) 4S N. C. (3 Jones, L.) Appx. 1; Re
Taxation of Salaries of Judges (1902) 131 N. C. 692, 42 S. E. 970; Com. ex rel.
Hepburn vs. Mann (1843) 5 Watts & S. (Pa.) 403 (but see to the
contrary the earlier and much criticized case of Northumberland County
vs. Chapman (1829) 2 Rawle (Pa.) 73)” [*].
A different rule prevails in Wisconsin, according to the same annotation.
Another state holding the contrary view is Missouri.
The Constitution of the United States, like ours, forbids the diminution of
the compensation of Judges of the Supreme Court and of inferior courts. The
Federal Government has an income tax law. Does it embrace the salaries of
federal judges? In answering this question, we should consider four periods:
First period. No attempt was made to tax the compensation of Federal judges
up to 1862.[1]
Second period. 1862-1918. In July, 1862 a statute was passed subjecting the
salaries of “civil officers of the United States” to an income tax of three per
cent. Revenue officers construed it as including the compensation of all judges;
but Chief Justice Taney, speaking for the judiciary, wrote to the Secretary of
the Treasury a letter of protest saying, among other things:
“The act in question, as you interpret it, diminishes the compensation of
every judge 3 per cent, and if it can be diminished to that extent by the name
of a tax, it may? in the same way, be reduced from time to time, at the pleasure
of the legislature.“The judiciary is one of the three great departments of the government,
created and established by the Constitution. Its duties and powers are
specifically set forth, and are of a character that requires it to be perfectly
independent of the two other departments, and in order to place it beyond the
reach and above even the suspicion of any such influence, the power to reduce
their compensation is expressly withheld from Congress, and excepted from their
powers of legislation.“Language could not be more plain than that used in the Constitution. It is,
moreover , one of its most important and essential provisions. For the articles
which limit the powers of the legislative and executive branches of the
government, and those which provide safeguards for the protection of the citizen
in his person and property, would be of little value without a judiciary to
uphold and maintain them, which was free from every influence, direct or
indirect, that might by possibility in times of political excitement warp their
judgments.“Upon these grounds I regard an act of Congress retaining in the Treasury a
portion of the compensation of the judges, as unconstitutional and void”[2].
The protest was unheeded, although it apparently bore the approval of the
whole Supreme Court, that ordered it printed among its records. But in 1369
Attorney-General Hoar upon the request of the Secretary of the Treasury rendered
an opinion agreeing with the Chief Justice. The collection of the tax was;
consequently, discontinued and the amounts theretofore received, were all
refunded. For half a century thereafter judges’ salaries were not taxed as
income.[3]
Third period. 1919-1936. The Federal Income Tax Act of February 24, 1919
expressly provided that taxable income shall include “the compensation of the
judges of the Supreme Court and inferior courts of the United States”. Under
such Act, Walter Evans, United States judge since 1899, paid income tax on his
salary; and maintaining that the impost reduced his compensation, he sued to
recover the money he had delivered under protest. He was upheld in 1920 by the
Supreme Court in an epoch-making decision [*],
explaining the purpose, history and meaning of the Constitutional provision
forbidding impairment of judicial salaries and the effect of an income tax upon
the salary of a judge.
“With what purpose does the Constitution provide that the compensation of the
judges ‘shall not be diminished during their continuance in office’? Is it
primarily to benefit the judges, or rather to promote the public weal by giving
them that independence which makes for an impartial and courageous discharge of
the judicial function? Does the provision merely forbid direct diminution, such
as expressly reducing the compensation from a greater to a less sum per year,
and thereby leave the way open for indirect, yet effective, diminution, such as
withholding or calling back a part as a tax on the whole? Or does it mean that
the judge shall have a sure and continuing right to the compensation, whereon he
confidently may rely for his support during his continuance in office, so that
he need have no apprehension lest his situation in this regard may be changed to
his disadvantage?“The Constitution was framed on the fundamental theory that a larger measure
of liberty and justice would be assured by vesting the three great powers—the
legislative, the executive, and the judicial—in separate departments, each
relatively independent of the others; and it was recognized that without this
independence—if it was not made both real and enduring—the separation would fail
of its purpose. All agreed that restraints and checks must be imposed to secure
the requisite measure of independence; for otherwise the legislative department,
inherently the strongest, might encroach on or even come to dominate the others,
and the judicial, naturally the weakest, might be dwarfed or swayed by the other
two, especially by the legislative.“The particular need for making the judiciary independent was elaborately
pointed out by Alexander Hamilton in the Federalist, No. 78, from which we
excerpt the following:
* * * * * * *
“At a later period John Marshall, whose rich experience as lawyer,
legislator, and chief justice enabled him to speak as no one else could, tersely
said (Debates Va. Gonv. 1829-1831, pp. 616, 619): * * * Our courts are the
balance wheel of our whole constitutional system; and ours is the only
constitutional system so balanced and controlled. Other constitutional systems
lack complete poise and certainty of operation because they lack the support and
interpretation of authoritative, undisputable courts of law. It is clear beyond
all need of exposition that for the definite maintenance of constitutional
understandings it is indispensable, alike for the preservation of the liberty of
the individual and for the preservation of the integrity of the powers of the
government, that there should be some nonpolitical forum in which those
understandings can be impartially debated and determined. That forum our courts
supply. There the individual may assert his rights; there the government must
accept definition of its authority. There the individual may challenge the
legality of governmental action and have it adjudged by the test of fundamental
principles, and that test the government must abide; there the government can
check the too aggressive self-assertion of the individual and establish its
power upon lines which all can comprehend and heed. The constitutional powers of
the courts constitute the ultimate safeguard alike of individual privilege and
of governmental prerogative. It is in this sense that our judiciary is the
balance wheel of our entire system; it is meant to maintain that nice adjustment
between individual rights and governmental powers which constitutes political
liberty’. Constitutional Government in the United States, pp. 17, 142.“Conscious of the nature and scope of the power being vested in the national
courts, recognizing that they would be charged with responsibilities more
delicate and important than any ever before confided to judicial tribunals, and
appreciating that they were to be, in the words of George Washington, ‘the
keystone of our political fabric’, the convention with unusual accord
incorporated in the Constitution the provision that the judges ‘shall hold their
offices during good behavior, and shall at stated times receive for their
services a compensation which shall not be diminished during their continuance
in office’. Can there be any doubt that the two things thus coupled in place—the
clause in respect of tenure during good behavior and that in respect of an
undiminishable compensation—were equally coupled in purpose? And is it not plain
that their purpose was to invest the judges with an independence in keeping with
the delicacy and importance of their task, and with the imperative need for its
impartial and fearless performance? Mr. Hamilton said in explanation and support
of the provision (Federalist, No. 79): ‘Next to permanency in office, nothing
can contribute more to the independence of the judges than a fixed provision for
their support . . . . . . In the general course of human nature, a power over a
man’s subsistence amounts to a power over his will. . . .
* * * * * * *
“These considerations make it very plain, as we think, that the primary
purpose of the prohibition against diminution was not to benefit the judges,
but, like the clause in respect of tenure, to attract good and competent men to
the bench, and to promote that independence of action and judgment which is
essential to the maintenance of the guaranties, limitations, and pervading
principles of the Constitution, and to the administration of justice without
respect to persons, and with equal concern for the poor and the
rich.
* * * * * * *
“But it is urged that what the plaintiff was made to pay back was an income
tax, and that a like tax was exacted of others engaged in private
employment.
“If the tax in respect of his compensation be prohibited, it can
find no justification in the taxation of other income as to which there is no
prohibition; for, of course, doing what the Constitution permits gives no
license to do what it prohibits.“The prohibition is general, contains no excepting words, and appears to be
directed against all diminution, whether for one purpose or another; and the
reasons for its adoption, as publicly assigned at the time and commonly accepted
ever since, make with impelling force for the conclusion that the fathers of the
Constitution intended to prohibit diminution by taxation as well as otherwise,
that they regarded the independence of the judges as of far greater importance
than any revenue that could come from taxing their salaries.” (American Law
Reports, Annotated, Vol. 11, pp. 522-25; Evans vs. Gore,
supra.)
In September 1, 1919, Samuel J. Graham assumed office as judge of the United
States court of claims. His salary was taxed by virtue of the same income tax of
February 24, 1919. At the time he qualified, a statute fixed his salary at
$7,500. He filed action for reimbursement, submitting the same theory on which
Evans v. Gore had been decided. The Supreme Court of the United States in 1925
reaffirmed that decision. It overruled the distinction offered by
Solicitor-General Beck that Judge Graham took office after the income
tax had been levied on judicial salaries, (Evans qualified before), and
that Congress had power “to impose taxes which should apply to the salaries of
Federal judges appointed after the enactment of the taxing statute”. (The law
had made no distinction as to judges appointed before or after its passage).
Fourth period. 1939 — Foiled in their previous attempts, the Revenue men
persisted, and succeeded in inserting in the United States Revenue Act of June,
1932 the modified proviso that “gross income” on which taxes were payable
included the compensation “of judges of courts of the United States taking
office after June 6, 1932″. Joseph W. Woodrough qualified as United
States circuit judge on May 1, 1933. His salary as judge was taxed, and before
the Supreme Court of the United States the issue of decrease of remuneration
again came up. That court, however, ruled against him, declaring (in 1939) that
Congress had the power to adopt the law. It said:
“The question immediately before us is whether Congress exceeded its
constitutional power in providing that United States judges appointed after the
Revenue Act of 1932 shall not enjoy immunity,from the incidences of taxation to
which everyone else within the defined classes of income is subjected. Thereby,
of course, Congress has committed itself to the position that a
non-discriminatory tax laid generally on net income is not, when applied to the
income of a federal judge, a diminution of his salary within the prohibition of
Article 3, Sec. 1 of the Constitution. To suggest that it makes inroads upon the
independence of judges who took office after Congress had thus charged them with
the common duties of citizenship, by making them bear their aliquot share of the
cost of maintaining the Government, is to trivialize the great historic
experience on which the framers based the safeguards of Article 3, Sec. 1. To
subject them to a general tax is merely to recognize that judges are also
citizens, and that their particular function in government does not generate an
immunity from sharing with their fellow citizens the material burden of the
government whose Constitution and laws they are charged with administering”.
(O’Malley vs Woodrough, 59 S. Ct. 838, 122 A. L. R.
1379).
Now, the case for the defendant-appellant Collector of Internal Revenue is
premised mainly on this decision (Note A). He claims it holds “that federal
judges are subject to the payment of income taxes without violating the
constitutional prohibition against the reduction of their salaries during their
continuance in office”, and that it “is a complete repudiation of the ratio
decidendi of Evans vs. Gore”. To grasp the full import of the
O’Malley precedent, we should bear in mind that:
- It does not entirely overturn Miles vs. Graham. “To the
extent that what the Court now says is inconsistent with what was said in
Miles vs. Graham, the latter can not survive”, Justice Frankfurter
announced. - It does not expressly touch nor amend the doctrine in Evans vs.
Gore, although it indicates that the Congressional Act in dispute avoided in
part the consequences of that case.
Carefully analyzing the three cases (Evans, Miles and O’Malley) and piecing
them together, the logical conclusion may be reached that although Congress may
validly declare by law that salaries of judges appointed thereafter
shall be taxed as income (O’Malley vs. Woodrough) it may not tax the
salaries of those judges already in office at the time of such
declaration because such taxation would diminish their salaries (Evans
vs. Gore; Miles vs. Graham). In this manner the rationalizing
principle that will harmonize the allegedly discordant decisions may be
condensed.
By the way, Justice Frankfurter, writing the O’Malley decision, says the
Evans precedent met with disfavor from legal scholarship opinion. Examining the
issues of Harvard Law Review at the time of Evans vs. Gore (Frankfurter
is a Harvard graduate and professor), we found that such school publication
criticized it. Believing this to be the “inarticulate consideration that may
have influenced the grounds on which the case went off”[4], we looked into the criticism, and discovered that it
was predicated on the proposition that the I6th Amendment empowered Congress “to
collect taxes on incomes from whatever source derived” admitting of no
exception. Said the Harvard Law Journal:
“In the recent case of Evans vs. Gore the Supreme-Court of the
United States decided that by taxing the salary of a federal judge as a part of
his income, Congress was in effect reducing his salary and thus violating Art.
III, sec. 1, of the Constitution. Admitting for the present purpose that such a
tax really is a reduction of salary, even so it would seem that the words of the
amendment giving power to tax ‘incomes, from whatever source derived’, are
sufficiently strong to overrule pro tanto the provisions of Art. III,
sec. 1. But, two years ago, the court had already suggested that the amendment
in no way extended the subjects open to federal taxation. The decision in Evans
v. Gore affirms that view, and virtually strikes from the amendment the words
‘from whatever source derived’.” (Harvard Law Review, Vol. 34, P.
70).
The United States Court’s shift of position[5]
might be attributed to the above detraction which, without appearing on the
surface, led to Frankfurter’s sweeping expression about judges being also
citizens liable to income tax. But it must be remembered that that undisclosed
factor—the 16th Amendment—has no counterpart in the Philippine legal system. Our
Constitution does not repeat it. Wherefore, as the underlying influence and the
unuttered reason has no validity in this jurisdiction, the broad generalization
loses much of its force.
“Anyhow the O’Malley case declares no more than that Congress may validly
enact a law taxing the salaries of judges appointed after its passage. Here
in the Philippines no such law has been approved.
Besides, it is markworthy that, as Judge Woodrough had qualified after
the express legislative declaration taxing salaries, he could not very
well complain. The United States Supreme Court probably had in mind what in
other cases was maintained, namely, that the tax levied on the salary, in effect
decreased the emoluments of the office and, therefore, the judge qualified
with such reduced emoluments [6].
The O’Malley ruling does not cover the situation in which judges already in
office are made to pay tax by executive interpretation, without express
legislative declaration. That state of affairs is controlled by the
administrative and judicial standards herein-before described in the “second
period” of the Federal Government, namely, the views of Chief Justice Taney and
of Attorney-General Hoar and the constant practice from 1869 to 1938, i, e.,
when the Income Tax Law merely taxes “income” in general, it does not include
salaries of judges protected from diminution.
In this connection the
respondent would make capital of the circumstance that the Act of 1932, upheld
in the O’Malley case, has subsequently been amended by making it applicable even
to judges who took office before 1932. This shows, the appellant
argues, that Congress interprets the O’Malley ruling to permit legislative
taxation of the salary of judges whether appointed before the tax or after. The
answer to this is that the Federal Supreme Court expressly withheld opinion on
that amendment in the O’Malley case. Which is significant. Anyway, and again,
there is here no congressional directive taxing judges’ salaries.
Wherefore, unless and until our Legislature approves an amendment to the
Income Tax Law expressly taxing “the salaries of judges thereafter appointed”,
the O’Malley case is not relevant. As in the United States during the second
period, we must hold that salaries of judges are not included in the word
“income” taxed by the Income Tax Law. Two paramount circumstances may
additionally be indicated to wit: First, when the Income Tax Law was first
applied to the Philippines in 1913, the taxable “income” did not include
salaries of judicial officers when these are protected from diminution. That was
the prevailing official belief in the United States, which must be deemed to
have been transplanted here [7]; and second, when the
Philippine Constitutional Convention approved (in 1935) the prohibition against
diminution of the judges’ compensation, the Federal principle was known that
income tax on judicial salaries really impairs them. Evans v. Gore and Miles
vs. Graham were then outstanding doctrines; and the inference is not
illogical that in restraining the impairment of judicial compensation the
Fathers of the Constitution intended to preclude taxation of the same [8].
It seems that prior to the O’Mailey decision the Philippine Government did
not collect income tax on salaries of judges. This may be gleaned from General
Circular No. 449 of the Department of Finance dated March 4, 1940, which says in
part:
“The question of whether or not the salaries of judges should be taken into
account in computing additional residence taxes is closely linked with the
liability of judges to income tax on their salaries, in fact, whatever
resolution is adopted with respect to either of said taxes must necessarily be
followed with respect to the other. The opinion of the Supreme Court of the
United States in the case of O’Malley vs. Woodrough, 59 S. Ct. 838, to
which the attention of this Department has been drawn, appears to have
enunciated a new doctrine regarding the liability of judges to income tax upon
their salaries. In view of the fact that the question is of great significance,
the matter was taken up in the Council of State, and the Honorable, the
Secretary of Justice was requested to give an opinion on whether or not, having
in mind the said decision of the Supreme Court of the United States in the case
of O’Malley vs. Woodrough, there is justification in reversing our
present ruling to the effect that .judges are not liable to tax on their
salaries. After going over the opinion of the court in the said case, the
Honorable, the Secretary of Justice, stated that although the ruling of the
Supreme Court of the United States is not binding in the Philippines, the
doctrine therein enunciated has resolved the issue of the taxability of
judges’ salaries into a question of policy. Forwith, His Excellency, the
President decided that the best policy to adopt would be to collect income and
additional residence taxes from the President of the Philippines, the members of
the Judiciary, and the Auditor General, and the undersigned was authorized to
act accordingly.“In view of the foregoing, income and additional residence taxes should be
levied on the salaries received by the President of the Philippines, members of
the judiciary, and the Auditor General during the calendar year 1939 and
thereafter, * * * * * * *”. (Italics ours)
Of course, the Secretary of Justice correctly opined that the O’Malley
decision “resolved the issue of taxability of judges’ salaries into a
question of policy.” But that policy must be enunciated by Congressional
enactment, as was done in the O’Malley case, not by Executive fiat or
interpretation.
This is not proclaiming a general tax immunity for men on the Bench. These
pay taxes. Upon buying gasoline, or cars or other commodities, they pay the
corresponding duties. Owning real property, they pay taxes thereon. And on
incomes other than their judicial salary, assessments are levied. It is only
when the tax is charged directly on their salary and the effect of the tax is to
diminish their official stipend—that the taxation must be resisted as an
infringement of the fundamental charter.
Judges would indeed be hapless guardians of the Constitution if they did not
perceive and block encroachments upon their prerogatives in whatever form. The
undiminishable character of judicial salaries is not a mere privilege of
judges—personal and therefore waivable—but a basic limitation upon legislative
or executive action imposed in the public interest (Evans vs.
Gore).
Indeed the exemption of the judicial salary from reduction by taxation is not
really a gratuity or privilege. Let the highest court of Maryland speak:
“The exemption of the judicial compensation from reduction is not in any true
sense a gratuity, privilege or exemption. It is essentially and primarily
compensation based upon valuable consideration. The covenant on the part of the
government is a guaranty whose fulfillment is as much a part of the
consideration agreed as is the money salary. The undertaking has its own
particular value to the citizens in securing the independence of the judiciary
in crises; and in the establishment of the compensation upon a permanent
foundation whereby judicial preferment may be prudently accepted by those who
are qualified by talent, knowledge, integrity and capacity, but are not
possessed of such a private fortune as to make an assured salary an object of
personal concern. On the other hand, the members of the judiciary relinquish
their position at the bar, with all its professional emoluments, sever their
connection with their clients, and dedicate themselves exclusively to the
discharge of the onerous duties of their high office. So, it is irrefutable that
the guaranty against a reduction of salary by the imposition of a tax is not an
exemption from taxation in the sense of freedom from a burden or service to
which others are liable. The exemption for a public purpose or a valid
consideration is merely a nominal exemption, since the valid and full
consideration or the public purpose promoted is received in the place of the
tax. Theory and Practice of Taxation (1900), D. A. Wells, p. 541.” (Gordy
vs. Dennis (Md.) 1939, 5 Atl. Rep. 2d Series, p. 80).
It is hard to see, appellant asserts, how the imposition of the income tax
may imperil the independence of the judicial department. The danger may be
demonstrated. Suppose there is power to tax the salary of judges, and the
judiciary incurs the displeasure of the Legislature and the Executive. In
retaliation the income tax law is amended so as to levy a 30 per cent tax on all
salaries of government officials on the level of judges. This naturally reduces
the salary of the judges by 30 per cent, but they may not grumble because the
tax is general on all receiving the same amount of earnings, and affects the
Executive and the Legislative branches in equal measure. However, means are
provided thereafter in other laws, for the increase of salaries of the Executive
and the Legislative branches, or their perquisites such as allowances, per
diems, quarters, etc. that actually compensate for the 30% reduction on their
salaries. Result: Judges’ compensation is thereby diminished during their
incumbency, thanks to the income tax law. Consequence: Judges must “toe the
line”, or else. Second consequence: Some few judges might falter; the great
majority will not. But knowing the frailty of human nature, and this chink in
the judicial armor, will the parties losing their cases against the Executive or
the Congress believe that the judicature has not yielded to their pressure?
Respondent asserts in argumentation that by executive order the President has
subjected his salary to the income tax law. In our opinion this shows obviously
that, without such voluntary act of the President, his salary would not be
taxable, because of constitutional protection against diminution. To argue from
this executive gesture that the judiciary could, and should act in like manner
is to assume that, in the matter of compensation and power and need of security,
the judiciary is on a par with the Executive. Such assumption, certainly,
ignores the prevailing state of affairs.
The judgment will be affirmed. So ordered.
Moran, C. J., Pablo,
Padilla, Tuason, Montemayor, Reyes, and Torres, JJ., concur.
Ozaeta, J., see dissenting opinion.
Paras, J., concurs in the dissenting opinion of Justice Ozaeta.
[*] Evans vs. Gore, 253 U. S. 245 and
Gordy vs. Dennis, 5 Atl. (2d) 69 hold identical view.
[1] Evans vs. Gore, 253 U. S. 245, 64 L. ed.
887.
[2] 157 U. S. 701, Evans vs. Gore,
supra.
[3] See Evans vs. Gore,
supra.
[*] Evans vs. Gore,
supra.
(Note A) The defendant also relies
on the dissenting opinion of Mr. Justice Holmes in Evans vs. Gore,
supra, forgetting that subsequently Justice Holmes did not dissent in
Miles vs. Graham, and apparently accepted Evans vs. Gore as
authority in writing his opinion in Gillespie vs. Oklahoma, 257 U. S.
501, 66 Law ed. 338. This remark applies to Taylor vs. Gehner (1931),
No. 45 S. W. (2d) 59, which merely echoes Holmes dissent.
State
vs. Nygaard, 159, Wisc. 369 and the decisions of English courts invoked
by appellant, are refuted or distinguished in Gordy vs. Dennis, 5 Atl.
(2d) 68, known to him since he invokes the minority opinion therein.
[4]Frankfurter, The Administrative Side of
Chief Justice Hughes, Harvard Law Review, November 1949.
[5] It was a coincidence that the dissenters
(Holmes and Brandeis) were Harvard men like Frankfurter. It is not unlikely that
the Harvard professor and admirer of Justice Holmes (whose biography he wrote in
1938) noted and unconsciously absorbed the dissent.
[6]Baker vs. C. I. R. 149 Fed. (2d) 342.
[7] It requires a very clear case to justify changing the
construction of a constitutional provision which has been aquiesced in for so
long a period as fifty years. (State vs. Frear 138 Wisc. 536, 120 N. W.
216. See also Hill vs. Tohill, 225 Ill. 384, 80 NE, 253.)
[8] On persuasive weight of contemporary construction of
constitutional provision, see generally Cooley, Constitutional Limitation (8th
Ed.) Vol. I, pp. 144 et seq.
OZAETA, J.:
It is indeed embarrassing that this case was initiated by a member of this
court upon which devolves the duty to decide it finally. The question of whether
the salaries of the judges, the members of the Commission on Elections, the
Auditor General, and the President of the Philippines are immune from taxation,
might have been raised by any interested party other than a justice of the
Supreme Court with less embarrassment to the latter.
The question is simple and not difficult of solution. We shall state our
opinion as concisely as possible.
The first income tax law of the Philippines was Act No. 2833, which was
approved on March 7, 1919, to take effect on January 1, 1920. Section 1
(a) of said Act provided:
“There shall be levied, assessed, collected, and paid annually upon the
entire net income received in the preceding calendar year from
all sources by every individual, a citizen or resident of the
Philippine Islands, a tax of two per centum upon such income . . .” (Italics
ours.)
Section 2 (a) of said Act provided:
“Subject only to such exemptions and deductions as are hereinafter allowed ,
the taxable net income of a person shall include gains, profits, and income
derived from salaries, wages, or compensation for personal service of whatever
kind and in whatever form paid, or from professions, vocations, businesses,
trade, commerce, sales or dealings in property, whether real or personal,
growing out of the ownership or use of or interest in real or personal property,
also from interest, rent, dividends, securities, or the transaction of any
business carried on for gain or profit, or gains, profits, and income derived
from any source whatever.”(Italics ours.)
That income tax lav; has been amended several times, specially as to the
rates of the tax, but the above-quoted provisions (except as to the rate) have
been preserved intact in the subsequent Acts. The present income tax law is
Title II of the National Internal Revenue Code, Commonwealth Act No. 466,
sections 21, 26, and 29 of which incorporate the texts of the above-quoted
provisions of the original Act in exactly the same language. There can be no
dispute whatsoever that judges (who are individuals) and their salaries (which
are income) are as clearly comprehended within the above-quoted provisions of
the law as if they were specifically mentioned therein; and in fact all judges
had been and were paying income tax on their salaries when the Constitution of
the Philippines was discussed and approved by the Constitutional Convention and
when it was submitted to the people for confirmation in the plebiscite of May
14, 1935.
Now, the Constitution provides that the members of the Supreme Court and all
judges of inferior courts “shall receive such compensation as may be fixed by
law, which shall not be diminished during their continuance in office.”
(Section 9, Article VIII; italics ours.)[a]
The simple question is: In approving the provisions against the diminution of
the compensation of judges and other specified officers during their continuance
in office, did the framers of the .Constitution intend to nullify the then
existing income tax law insofar as it ; imposed a tax on the salaries of
said-officers? If they did not, then the income tax law, which has been
incorporated in the present National Internal Revenue Code, remains in force in
its entirety and said officers cannot claim exemption therefrom on their
salaries.
Section 2 of Article XVI of the Constitution provides that all laws of the
Philippine Islands shall remain operative, unless inconsistent with this
Constitution, until amended, altered, modified, or repealed by the Congress of
the Philippines.
In resolving the question at bar, we must take into consideration the
following well-settled rules:
“A constitution shall be held to be prepared and adopted in reference to
existing statutory laws, upon the provisions of which in detail it must depend
to be set in practical operation’ (People vs. Potter, 47 N.T. 375;
People vs. Draper, 15 N.Y. 537; Cass vs. Dillon, 2 Ohio St.
607; People vs. New York, 25 Wend. (N.Y. 22).” (Barry vs.
Traux, 3 A. & E. Ann. Cas. 191, 193.)“Courts are bound to presume that the people adopting a constitution are
familiar with the previous and existing laws upon the subjects to which its
provisions relate, and upon which they express their judgment and opinion in its
adoption (Baltimore vs. State, 15 Md. 376, 480, 74 Am. Dec. 572; State
vs. Mace, 5 Md. 337; Bandel vs. Isaac, 13 Md. 202; Manly
vs. State, 7 Md. 135; Hamilton vs. St. Louis County Ct., 15
Mo. 5; People vs. Gies, 25 Mich. 83; Servis vs. Beatty, 32
Miss. 52; Pope vs. Phifer, 3 Heisk. (Tenn.) 686; People vs.
Harding, 53 Mich. 48, 51 Am. Rep. 95; Creve Coeur Lake Ice Co. vs.
Tamm, 138 Mo. 385, 39 S.W. Rep. 791).”(Idem.)“A constitutional provision must be presumed to have been, framed and adopted
in the light and understanding of prior and existing laws and with reference to
them. Constitutions, like statutes, are properly to be expounded in the light of
conditions existing at the time of their adoption, the general spirit of the
times, and the prevailing sentiments among the people. Reference may be made to
the historical facts relating to the original or political institutions of the
community or to prior well-known practices and usages.” (11 Am. Jur.,
Constitutional Law, 676-678.)
The salaries provided in the Constitution for the Chief Justice and each
Associate Justice, respectively, of the Supreme Court were^ the same salaries
which they were receiving at the time the Constitution was framed and adopted
and on which they were paying income tax under the existing income tax law. It
seems clear to us that for them to receive the same salaries, subject to the
same tax, after the adoption of the Constitution as before does not involve any
diminution at all. The fact that the plaintiff was not a member of the Court
when the Constitution took effect, makes no difference. The salaries of justices
and judges were subject to income tax when he was appointed in the early part of
1945. In fact he must have declared and paid income tax on his salary for
1945—he claimed exemption only beginning 1946. It seems, likewise, clear that
when the framers of the Constitution fixed those salaries, they must have taken
into consideration that the recipients were paying income tax thereon. There was
no necessity to provide expressly that said salaries shall be subject to income
tax because they knew that the existing law already so provided. On the other
hand, if exemption I from any tax on said salaries had been intended, it would
have been necessary specifically to so provide, instead of merely saying that
the compensation as fixed “shall not be diminished during their continuance in
office.”
In the light of the antecedents, the prohibition against diminution cannot be
interpreted to include or refer to general taxation but to a law by which said,
salaries may be fixed. The sentence in question reads: “They shall receive such
compensation as may be fixed by law, which shall not be diminished during their
continuance in office.” The next sentence reads: “Until the Congress shall
provide otherwise, the Chief Justice of the Supreme Court shall receive an
annual compensation of sixteen thousand pesos, and each Associate Justice,
Fifteen thousand pesos.” It is plain that the Constitution authorizes the
Congress to pass a law fixing another rate of compensation, but that such rate
must be higher than that which the justices receive at the time of its enactment
or, if lower, it must not affect those justices already in office. In other
words, Congress may approve a law increasing the salaries of the justices
effective at any time, but it cannot approve a law decreasing their salaries
unless such law is made effective only as to justices appointed after its
approval.
It would indeed be a strained and unreasonable construction of the
prohibition against diminution to read into it an exemption from taxation. There
is no justification for the belief or assumption that the framers of the
Constitution intended to exempt the salaries of said officers from taxes. They
knew that it was and is the unavoidable duty of every citizen to bear his
aliquot share of the cost of maintaining the Government; that taxes are the very
blood that sustains the life of the Government. To make all citizens share the
burden of taxation equitably, the Constitution expressly provides that “the rule
of taxation shall be uniform.” (Section 22 [1], Article VI.) We think it would
be a contravention of this provision to read into the prohibition against
diminution of the salaries of the judges and other specified officers, an
exemption from taxes on their salaries. How could the rule of income taxation be
uniform if it should not be applied to a group of citizens in the same situation
as other income earners? It is to us inconceivable that the framers ever
intended to relieve certain officers of the Government from sharing with their
fellow citizens the material burden of the Government—to exempt their salaries
from taxes. Moreover, the Constitution itself specifies what properties are
exempt from taxes, namely: “Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively
for religious, charitable, or educational purposes.” (Section 22 [3], Article
VI.) The omission of the salaries in question from this enumeration is in itself
an eloquent manifestation of intention to continue the imposition of taxes
thereon as provided in the existing law. Inclusio unius est exclusio
alterius.
We have thus far read and construed the pertinent portions of our own
Constitution and income tax law in the light of the antecedent circumstances,
and of the Operative factors which prevailed at the time our Constitution was
framed, independently of the construction now prevailing in the United States of
similar provisions of the federal Constitution in relation to the present
federal income tax law, under which the justices of the Supreme Court and the
federal judges are now, and since the case of O’Malley vs. Woodrough
was decided on May 22, 1939, have been, paying income tax on their salaries.
Were this a majority opinion, we could end here with the consequent reversal of
the judgment appealed from. But ours is a voice in the wilderness, and we may
permit ourselves to utter it with more vehemence and emphasis so that future
players on this stage perchance may hear and heed it. Who knows? The Gospel
itself was a voice in the wilderness at the time it was uttered.
We have to comment on Anglo-American precedents since the majority decision
from which we dissent is based on some of them. Indeed, the majority say they
“hardly do nothing more than to borrow therefrom and to compare their
conclusions to local conditions,” which we shall presently show did not,obtain
in the United States at the time the federal and state Constitutions were
adopted. We shall further show that in any event what they now borrow is not
usable because it has long been withdrawn from circulation.
When the American Constitution was framed and adopted, there was no income
tax law in the United States. To this circumstance may be attributed the claim
made by some federal judges headed by Chief Justice Taney, when under the Act of
Congress of July 1, 1862, their salaries were subjected to an income tax, that
such tax was a diminution of their salaries and therefore prohibited by the
Constitution. Chief Justice Taney’s claim and his protest against the tax were
not heeded, but no federal judge deemed it proper to sue the Collector of
Internal Revenue to recover the taxes they continued to pay under protest for
several years. In 1869 the Secretary of the Treasury referred the question to
Attorney General Hoar, and that officer rendered an opinion in substantial
accord with Chief Justice Taney’s protest, and also advised that the tax on the
President’s compensation was likewise invalid. No judicial pronouncement,
however, was made of such invalidity until June 1, 1920, when the case of Evans
vs. Gore (253 U.S. 245, 64 L. ed. 887) was decided upon the suit of District
Judge Walter Evans, who challenged the constitutionality of section 213 of the
Act of February 24, 1919, which required the computation of incomes for the
purpose of taxation to embrace all gains, profits, income, and the like,
“including in the case of the President of the United States, the judges of the
Supreme and inferior courts of the United States, [and others] . . . the
compensation received as such.” The Supreme Court of the United States, speaking
thru Mr. Justice Van Devanter, sustained the suit with the dissent of Justices
Holmes and Brandeis. The doctrine of Evans vs. Gore holding in effect
that an income tax on a judge’s salary is a diminution thereof prohibited by the
Constitution, was reaffirmed in 1925 in Miles vs. Graham, 69 L. ed.
1067.
In 1939, however, the case of O’Malley vs. Woodrough (59 S. Ct. 838,
122 A. L. R. 1379) was brought up to test the validity of section 22 of the
Revenue Act of June 6, 1932, which included in the “gross income,” on the basis
of which taxes were to be paid, the compensation of “judges of courts of the
United States taking office after June 6, 1932.” And in that case the Supreme
Court of the United States, with only one dissent (that of Justice Butler),
abandoned the doctrine of Evans vs. Gore and Miles vs. Graham
by holding:
“To subject them [the judges] to a general tax is merely to recognize that
judges are also citizens, and that their particular function in ; government
does not generate an immunity from sharing with their fellow citizens the
material burden of the government whose Constitution and laws they are charged
with administering.”
The decision also says:
“To suggest that it [the law in question] makes inroads upon the independence
of judges who took office after Congress had thus charged them with the common
duties of citizenship, by making them bear their aliquot share of the cost of
maintaining the Government, is to trivialize the great historic experience on
which the framers based the safeguards of Article 3, section
1.”
Commenting on the above-quoted portions of the latest decision of the Supreme
Court of the United States on the subject, Prof. William Bennett Munro, in his
book, The Government of the United States, which is used as a text in
various universities, says:
“. . . All of which seems to be common i sense, for surely the framers of the
Constitution, in seeking to prevent a resentful Congress from ever cutting a
judge’s salary, did not intend to relieve all federal judges from the general
obligations of citizenship. As for the President, he has never raised the issue;
every occupant of the White House since 1913 has paid his income tax without
protest.” (Pages 371-372.)
We emphasize that the doctrine of Evans vs. Gore and Miles
vs. Graham is no longer operative, and that all United States judges,
including those who took office before June 6, 1932, are subject to and
pay income tax on their salaries; for after the submission of O’Malley
vs. Woodrough for decision the Congress of the United States, by
section 3 of the Public Salary Act of 1939, amended section 22 (a) of
the Revenue Act of June 6, 1932, so as to make it applicable to “judges of
courts of the United States who took office on or before June 6, 1932.”
And the validity of that Act, in force for more than a decade, has not been
challenged.
Our colleagues import and transplant here the dead limbs of Evans vs. Gore
and Miles vs. Graham and attempt to revive and nurture them with painstaking
analyses and diagnoses that they had not suffered a fatal blow from O’Malley
vs. Woodrough. We refuse to join this heroic attempt because we believe
it is futile.
They disregard the actual damage and minimize it.by trying
to discover the process by which it was inflicted and the motivations that led
to the infliction. They say that the chief axe-wielder, Justice Frankfurter, was
a Harvard graduate and professor and that the Harvard Law Journal had criticized
Evans vs. Gore; that the dissenters in said case (Holmes and Brandeis)
were Harvard men like Frankfurter; and that they believe this to be the
“inarticulate consideration that may have influenced the grounds on which the
case [O’Malley vs. Woodrough] went off.” This argument is not valid, in
our humble belief. It was not only the Harvard Law Journal that had criticized
Evans vs. Gore. Justice Frankfurter and his colleagues said that the
decision in that case “met with wide and steadily growing disfavor from legal
scholarship and professional opinion,” and they cited the following: Clark.
Further Limitations Upon Federal Income Taxation, 30 Yale L. J. 75;
Corwin, Constitutional Law in 1919-1920, 15 Am. Pol. Sci. Rev. 635,
641-644; Fellman, Diminution of Judicial Salaries, 24 Iowa L. Rev. 89;
Lowndes, Taxing Income of Federal Judiciary, 19 Va. L. Rev. 153;
Powell, Constitutional Law in 1919-1920, 19 Mich. L. Rev. 117, 118;
Powell, The Sixteenth Amendment and Income from State Securities,
National Income Tax Magazine (July, 1923), 5, 6; 20 Columbia L. Rev. 794; 43
Harvard L. Rev. 318; 20 Ill. L. Rev. 376; 45 Law Quarterly Rev. 291; 7 Va. L.
Rev. 69; 3 University of Chicago L. Rev. 141. Justice Frankfurter and his
colleagues also said that “Evans vs. Gore itself was rejected by most
of the courts before whom the matter came after that decision.” Is not the
intention to throw Evans vs. Gore into the graveyard of abandoned ,
cases manifest from all this and from the holding that judges are also citizens,
liable to pay income tax on their salaries?
The majority say that “unless and until our legislature approves an amendment
to the income tax lav; expressly taxing ‘the salaries of judges thereafter
appointed,’ the O’Malley case is not relevant.” We have shown that our income
tax law taxes the salaries of judges, as clearly as if they are specifically
mentioned therein, and that said law took effect long before the adoption of the
Constitution and long before the plaintiff was appointed.
We agree that the purpose of the constitutional provision against diminution
of the salaries of judges during their continuance in office is to safeguard the
independence of the Judicial Department. But we disagree that to subject the
salaries of judges to a general income tax lav; applicable to all
income earners would in any way affect their independence. Our own experience
since the income tax law went into effect in 1920 is the best refutation of such
assumption.
The majority give an example by which the independence of judges may be
imperiled thru the imposition of a tax on their salaries. They say: Suppose
there is power to tax the salaries of judges and the judiciary incurs the
displeasure of the Legislature and the Executive. In retaliation the income tax
law is amended so as to levy a 30 per cent tax on all salaries of government
officials on the level of judges, and by means of another law the salaries of
the executive and the legislative branches are increased to compensate for the
30 per cent reduction on their salaries. To this we reply that if such a
vindictive measure is ever resorted to (which we cannot imagine), we shall be
the first ones to vote to strike it down,as a palpable violation of the
Constitution. There is no parity between such hypothetical law and the general
income tax law invoked by the defendant in this case. We believe that an income
tax law applicable only against the salaries of judges and not against those of
all other income earners may be successfully assailed as being in contravention
not only of the provision against diminution of the salaries of judges but also
of the uniformity of the rule of taxation as well as of the equal protection
clause of the Constitution. So the danger apprehended by the majority is not
real but purely imaginary.
We vote for the reversal of the judgment appealed
from and the dismissal of plaintiff’s complaint.
[a] The Constitution also provides that the President
shall “receive a compensation to be ascertained by law which shall be neither
increased nor diminished during the period for which he shall have been elected”
(section 9, Article VII); that the Auditor General “shall receive an annual
compensation to be fixed by law which shall not be diminished during his
continuance in office” (section 1, Article XI) ; and that the salaries of the
chairman and the members of the Commission on Elections “shall be neither
increased nor diminished during their term of office” (section 1, Article X).