DAVID G. NITAFAN, WENCESLAO M. POLO, AND MAXIMO A. SAVELLANO, JR., PETITIONERS, VS. COMMISSIONER OF INTERNAL REVENUE AND THE FINANCIAL OFFICER, SUPREME COURT OF THE PHILIPPINES,…

Nitafan versus Commissioner of Internal Revenue

The Case

This is a petition for prohibition filed by three Regional Trial Court judges against the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, asking the Court to stop the withholding of income tax from their salaries. The judges argued that any tax withheld from their compensation as judicial officers amounts to a decrease or diminution of their salaries, which the Constitution forbids during their continuance in office. The case matters because it forced the Supreme Court to settle, once and for all, whether the constitutional guarantee of non-diminution of judicial salaries includes an exemption from the general income tax law, and in doing so the Court abandoned a long-standing doctrine.

Procedural History

The matter first arose administratively. Representations had been made asking the Court to direct its Finance Officer to discontinue withholding taxes from the salaries of members of the judiciary. On June 4, 1987, the Court en banc re-affirmed the Chief Justice's standing directive to the Fiscal Management and Budget Office to continue deducting withholding taxes from the salaries of the Justices and of all other members of the judiciary. That administrative action, however, did not fully resolve the question. With the filing of this petition for prohibition, the Court deemed it best to settle the legal issue through a judicial pronouncement. The petition was thus an original action in the Supreme Court itself, not an appeal from any lower court.

Facts

The petitioners were the duly appointed and qualified judges presiding over three branches of the Regional Trial Court of the National Capital Judicial Region, all stationed in Manila. They filed a petition for prohibition and perpetual injunction against the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, seeking to stop the deduction of withholding taxes from their salaries.

Their theory was simple. Any tax withheld from their emoluments as judicial officers, they claimed, constitutes a decrease or diminution of their salaries, contrary to the constitutional mandate that during their continuance in office their salary shall not be decreased. They added that such taxation was anathema to the ideal of an independent judiciary envisioned by the Constitution.

The Court had earlier dealt with the same question administratively, reaffirming the Chief Justice's directive to continue the deduction of withholding taxes from the salaries of the Justices and of all other members of the judiciary. With the filing of the petition, the Court chose to settle the legal issue judicially, and it examined the deliberations of the Constitutional Commission to ascertain the intent of the framers.

Issues

• Whether or not the withholding of income tax from the salaries of judicial officers constitutes a decrease or diminution of their salaries prohibited by the Constitution during their continuance in office.
• Whether or not the salaries of Justices and judges are exempt from the general income tax law applicable to all income earners.

Applicable Provisions

Section 10, Article VIII of the 1987 Constitution provides:

The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of judges of lower courts shall be fixed by law. During their continuance in office, their salary shall not be decreased.

This is the provision the petitioners rely on, and the Court construes it to mean that the guarantee against decrease does not include an exemption from income tax.

Section 6, Article XV of the 1973 Constitution, the General Provisions, provided:

No salary or any form of emolument of any public officer or employee, including constitutional officers, shall be exempt from payment of income tax.

This express provision was omitted in the 1987 Constitution, which the petitioners read as a reversion to the old concept of non-diminution, but the Court looked to the deliberations to show the omission did not carry that meaning.

The draft proposal of Section 10, Article VIII of the 1987 Constitution originally read:

Section 13. The salary of the Chief Justice and the Associate Justices of the Supreme Court and of judges of the lower courts shall be fixed by law. During their continuance in office, their salary shall not be diminished nor subjected to income tax. Until the National Assembly shall provide otherwise, the Chief Justice shall receive an annual salary of ________ and each Associate Justice ________ pesos.

The deletion of the phrase on income tax, as explained in the debates, was made on the understanding that judicial salaries would be subject to the general income tax.

Ruling

On the first issue, the Court held that the payment of income tax by Justices and judges does not fall within the constitutional protection against decrease of their salaries during their continuance in office. The guarantee against decrease means that Congress may fix another rate of compensation, but such rate must be higher than that received at the time of enactment, or if lower, it would apply only to those appointed after its approval. It would be a strained construction to read into the provision an exemption from taxation.

On the second issue, the Court held that the salaries of Justices and judges are properly subject to a general income tax law applicable to all income earners. The Court traced the deliberations of the Constitutional Commission. Commissioner Rigos proposed to delete the words "nor subjected to income tax" so as to give substance to equality among the three branches of government. Commissioner Bernas proposed an amendment to the amendment, that the salary shall not be diminished but may be subject to general income tax, and Commissioner Rigos accepted it. After a suspension, Commissioner Bernas announced the understanding that the salary of justices is subject to tax, and that the doctrine in Perfecto versus Meer and Endencia versus David would not apply anymore. The amendment was approved without objection. The Court concluded that the true intent of the framers was to make the salaries of members of the Judiciary taxable, and that the ascertainment of that intent is in keeping with the fundamental principle of constitutional construction that the intent of the framers and of the people adopting the Constitution should be given effect.

The Court expressly declared discarded the ruling in Perfecto versus Meer, affirmed in Endencia versus David, that the imposition of income tax upon the salary of judges is a diminution thereof and so violates the Constitution. It reiterated that the salaries of Justices and Judges are properly subject to a general income tax law applicable to all income earners.

Doctrine

The salaries of Justices and judges are subject to the general income tax law applicable to all income earners, and the payment of such income tax does not constitute a decrease or diminution of their salaries within the meaning of Section 10, Article VIII of the 1987 Constitution. The guarantee against decrease authorizes Congress to fix another rate of compensation, but such rate must be higher than that received at the time of enactment, or if lower, it applies only to those appointed after its approval. The doctrine in Perfecto versus Meer and Endencia versus David, which held judicial salaries exempt from income tax, is abandoned. In constitutional construction, the primary task is to ascertain and assure the realization of the purpose of the framers and of the people in adopting the Constitution, and the people in ratifying it are presumed to have been guided by the explanation offered by the framers.

Disposition

The petition for prohibition was dismissed, and the withholding of income tax from the salaries of the petitioners was sustained.

Remember This

The single line worth memorizing is that the salaries of Justices and judges are subject to the general income tax law, and the withholding of that tax is not a decrease of salary under Section 10, Article VIII of the 1987 Constitution. Examiners like to use this case to test the discarded doctrine in Perfecto versus Meer and Endencia versus David, and to test the use of the deliberations of the Constitutional Commission in ascertaining the intent of the framers.