Endencia vs. David

The Court held that the collection of income tax on the salary of a judicial officer constitutes a diminution of compensation prohibited by the Constitution. Additionally, the Court established that the Legislature cannot validly encroach upon the judicial power to interpret the Constitution by enacting a statute that purports to define what constitutes a diminution of compensation, thereby attempting to bind the courts to a construction that contradicts a prior judicial interpretation.

Justice Pastor M. Endencia, serving as Associate Justice of the Court of Appeals, and Justice Fernando Jugo, serving as Presiding Justice of the Court of Appeals and subsequently as Associate Justice of the Supreme Court, paid income taxes on their respective salaries pursuant to assessments made by the Collector of Internal Revenue. They filed an action for refund in the Court of First Instance of Manila, claiming that the collection violated the constitutional prohibition against the diminution of the compensation of judicial officers during their continuance in office. The Collector defended the collection, citing Section 13 of Republic Act No. 590, which declared that the payment of income tax on salaries shall not be considered a diminution of compensation.

• Justice Endencia received an annual salary of P12,000 as Associate Justice of the Court of Appeals. The Collector of Internal Revenue collected P1,744.45 as income tax on this salary for the year 1951.
• Justice Jugo served as Presiding Justice of the Court of Appeals from January 1, 1950 to October 19, 1950, and as Associate Justice of the Supreme Court from October 20, 1950 to December 31, 1950. The Collector collected P2,345.46 as income tax on his salary for these periods.
• Section 9, Article VIII of the Constitution provides that judicial officers "shall receive such compensation as may be fixed by law, which shall not be diminished during their continuance in office."
• In Perfecto v. Meer, 85 Phil. 552, the Supreme Court previously held that the collection of income tax on judicial salaries constitutes a diminution of compensation prohibited by the Constitution, notwithstanding the contrary ruling in the United States Supreme Court case of O'Malley v. Woodrought, 307 U.S. 277.
• Congress enacted Republic Act No. 590, whose Section 13 provides: "No salary wherever received by any public officer of the Republic of the Philippines shall be considered as exempt from the income tax, payment of which is hereby declared not to be diminution of his compensation fixed by the Constitution or by law."
• The Solicitor General argued that Congress enacted Republic Act No. 590 to counteract the ruling in Perfecto v. Meer and to authorize the collection of income tax on judicial salaries.
• Under the withholding tax system in place, the income tax due on salaries was computed in advance and divided into equal portions deducted from each paycheck, resulting in judicial officers receiving less than their full statutory salaries every payday.

• Petitioners maintained that the collection of income tax on their salaries constitutes a diminution of compensation prohibited by Section 9, Article VIII of the Constitution, citing the controlling precedent established in Perfecto v. Meer.
• Petitioners argued that Section 13 of Republic Act No. 590 is unconstitutional because it constitutes a legislative interpretation of the Constitution, specifically the phrase "which shall not be diminished during their continuance in office," which encroaches upon the exclusive province of the Judiciary.
• Petitioners contended that the Legislature cannot by mere declaration validate a law that otherwise violates a constitutional prohibition.

• Respondent Collector of Internal Revenue argued that Congress enacted Republic Act No. 590, particularly Section 13, to counteract the decision in Perfecto v. Meer, which the legislature allegedly did not favorably receive.
• Respondent contended that Section 13 validly declares that the payment of income tax on salaries is not a diminution of compensation, and that this legislative declaration should control.
• Respondent relied on the legislative history of House Bill No. 1127 (which became Republic Act No. 590) to demonstrate legislative intent to subject judicial salaries to income tax.

• Procedural: N/A
• Substantive Issues:
  • Whether Section 13 of Republic Act No. 590, which declares that payment of income tax on salaries is not a diminution of compensation, is constitutional.
  • Whether the collection of income tax on the salaries of judicial officers constitutes a diminution of compensation prohibited by Section 9, Article VIII of the Constitution.
  • Whether the Legislature may validly interpret the Constitution or prescribe the construction of statutory language in a manner that binds the courts.

• Procedural: N/A
• Substantive: The Court declared Section 13 of Republic Act No. 590 unconstitutional and affirmed the decision ordering the refund of the taxes collected. The Court reaffirmed its ruling in Perfecto v. Meer that the collection of income tax on judicial salaries constitutes a diminution of compensation. The Court held that the power to interpret and apply the Constitution belongs exclusively to the Judicial department, and that the Legislature cannot by legislative fiat declare that the payment of income tax is not a diminution of compensation, as this would constitute an invasion of the judicial province. The Court emphasized that under the withholding tax system, the actual deduction of tax from each paycheck results in an actual and evident decrease in the compensation received by judicial officers.

• Separation of Powers and Judicial Review — The power to interpret and apply the Constitution and statutes is vested exclusively in the Judicial department. The Legislature cannot by declaratory act or legislative definition interpret the Constitution or prescribe how courts must construe statutory language, as this would constitute an encroachment upon judicial power and violate the fundamental principle of separation of powers.
• Non-diminution of Judicial Compensation — Section 9, Article VIII of the Constitution prohibits the diminution of the compensation of judicial officers during their continuance in office. The collection of income tax on judicial salaries, particularly under a withholding system where tax is deducted from each paycheck, constitutes an actual decrease in the amount received by the officer and thus violates the constitutional prohibition.
• Independence of the Judiciary as Public Policy — The constitutional exemption of judicial salaries from taxation is grounded on public policy to secure and preserve the independence of the Judiciary, not for the private benefit of individual judges. The purpose is to attract competent men to the bench and promote independence of judgment essential to the maintenance of constitutional guarantees and the administration of justice.

• "Defining and interpreting the law is a judicial function and the legislative branch may not limit or restrict the power granted to the courts by the Constitution." — Establishing the exclusive nature of the judicial power to interpret laws and the Constitution.
• "The legislature cannot, upon passing a law which violates a constitutional provision, validate it so as to prevent an attack thereon in the courts, by a declaration that it shall be so construed as not to violate the constitutional inhibition." — Establishing that Congress cannot cure a constitutional defect through legislative interpretation or declaration.
• "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 person and with equal concern for the poor and the rich." — Explaining the rationale behind the constitutional protection of judicial compensation as serving public interest rather than private benefit.

• Perfecto v. Meer, 85 Phil. 552 (1950) — Controlling precedent holding that the collection of income tax on judicial salaries constitutes a diminution of compensation; followed and reaffirmed.
• Evans v. Gore, 253 U.S. 245 (1920) — Cited for the principle that the prohibition against diminution of judicial compensation serves public interest by ensuring judicial independence.
• O'Malley v. Woodrought, 307 U.S. 277 (1939) — U.S. Supreme Court decision holding that income tax on judicial salaries does not violate the constitutional prohibition against diminution; distinguished and not followed by the Court in Perfecto v. Meer.
• Bandy v. Mickelson, 44 N.W.2d 341 — Cited for the principle that defining and interpreting law is a judicial function which the legislative branch may not restrict.

• Section 9, Article VIII of the Constitution — Provides that the compensation of members of the Supreme Court and judges of inferior courts shall not be diminished during their continuance in office; interpreted as prohibiting the collection of income tax on judicial salaries.
• Section 13 of Republic Act No. 590 — Declared unconstitutional; provided that no salary received by any public officer shall be considered exempt from income tax and that payment thereof is not a diminution of compensation.
• Article VI, Section 22(3) of the Constitution — Cited as an example of other constitutional tax exemptions for lands and buildings used exclusively for educational purposes.
• Section 29(b)(4) of the National Internal Revenue Code (as amended by Republic Act No. 566) — Exemption for income derived from government bonds.

• Justice Bautista Angelo — Concurred in the finding that Section 13 of Republic Act No. 590 constitutes an invasion of the province and jurisdiction of the judiciary, rendering it null and void; expressed no opinion on the doctrine in Perfecto v. Meer due to his prior participation in that case as former Solicitor General.

• Chief Justice Paras — Dissented on the basis of the reasons stated in the dissenting opinion of Justice Ozaeta in Perfecto v. Meer; disagreed with the majority's ruling that no legislation may provide that it be held valid although against a provision of the Constitution.