G.R. No. L-7670; March 28, 1914
CARMEN AYALA DE ROXAS, plaintiff-appellant, vs. THE CITY OF MANILA, defendant-appellant.

FACTS:
Doña Carmen Ayala de Roxas owned property on the Escolta in Manila. For the years 1901 and 1902, the property was assessed at P235,407.00 (land: P205,407.00; improvements: P30,000.00), and she paid the corresponding taxes. In 1903, pursuant to Act No. 581 , a Board of Tax Revision reassessed the property at a total value of P170,534.00 (land: P120,534.00; improvements: P50,000.00). Act No. 975 was subsequently passed, which required the Municipal Board to reduce the assessments for 1901 and 1902 if they were more than 50% above the 1903 revised assessment, and to allow any excess tax payments to be credited against taxes due for 1903 or subsequent years.

Based on a resolution of the Municipal Board, the City Assessor and Collector determined that the 1901/1902 land assessment alone was more than 50% higher than the 1903 land assessment. Consequently, a refund/credit of P2,121.80 was applied to the plaintiff’s 1903 tax obligation of P2,558.02. She paid only the difference of P436.22, receiving a receipt for payment in full for 1903.

Years later, in 1911, citing Supreme Court decisions (Zamora and Paterno cases) which interpreted the word “land” in Act No. 975 to include both land and improvements, the Collector of Internal Revenue reversed the prior interpretation. He concluded that since the total assessment for 1901/1902 (land and improvements) was not more than 50% above the total 1903 assessment, no refund was actually due. The City therefore demanded payment of the P2,121.80, treating it as a delinquent 1903 tax. To prevent the sale of her property, the plaintiff paid the amount under protest and filed this action to recover it.

ISSUE:
Was the plaintiff entitled to the refund/credit applied to her 1903 taxes under Act No. 975 , such that her 1903 taxes were fully paid and the City’s subsequent demand for repayment was unlawful?

RULING:
Yes. The Supreme Court ruled in favor of Carmen Ayala de Roxas.

The Court held that the plaintiff’s 1903 taxes were fully and lawfully paid. The refund/credit was properly granted based on the official interpretation of Act No. 975 by the City Assessor and Collector, which was expressly authorized by a resolution of the Municipal Board. The plaintiff relied on this official action in settling her tax obligation. The City, having led the taxpayer to believe her taxes were satisfied, could not later revoke the credit and demand repayment based on a subsequent judicial interpretation of the law. To hold otherwise would be unjust and would undermine the stability of official settlements.

The Court further found that the plaintiff’s payment under protest and subsequent suit for recovery was the proper legal remedy to challenge the City’s unlawful demand, which threatened her property with sale for alleged delinquency.

The judgment of the lower court was reversed. The Court ordered the City of Manila to return the sum of P2,121.80 to the plaintiff, with interest from January 26, 1911.