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 the continuance in office, their salary shall not be decreased. (Sec. 10, Art. VIII, 1987 Constitution)


Perfecto v. Meer
G.R. No. L-2348, February 27, 1950


Facts: 

In April 1947 the Collector of Internal Revenue required Mr. Justice Gregorio Perfecto to pay income tax upon his salary as member of the Court during the year 1946. After paying the amount, he instituted an 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.


Issue:

Whether or not the imposition of an income tax upon Justice Perfecto's salary in 1946 amount to a diminution thereof.


Held:

Yes. 

Third period. 1919-1938. 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.*, xxx

"The prohibition is general, contains no excepting words, and appears to be directed against all diminution, whether for one purpose or another; and the reason 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."

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 1913, 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; and second, when the Philippine Constitutional Convention approved (in 1935) the prohibition against diminution off the judges' compensation, the Federal principle was known that income tax on judicial salaries really impairs them. Evans vs. 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.


Note: This ruling was discarded in Nitafan v. CIR, G.R. No. 78780, July 23, 1987.