(b) In case where the shares of the merged company, which were held in the course of corporate merger, were issued by issuing new shares for merger and sold some of them, whether the taxation by adding the proceeds of such disposal to gross income, is contrary to the corporate accounting principles under Article 20 of the Framework Act on National Taxes.

(c) Where the amount obtained by deducting the actual amount of expenditure for acquiring stocks of the merged company from the face value of new stocks that are merged is omitted from the taxable income of the business year which includes the date on which the merger is registered, whether it may be included in gross income

(d) Whether the amount of fictitious dividend as stated in “C” may be deducted from the acquisition value on the account books in the calculation of gains on transfer of treasury stocks on the ground that it was not included in gross income;

B. In a case where Company A issued new stocks that were held in the course of the merger with Company B and sold and disposed of some of them, the provisions of Articles 57 and 62-2 of the Corporate Accounting Standards and Article 11 of the Corporate Accounting Standards are stipulated as capital transaction, even if the provisions of Article 9(1) and (2) and (3) of the Corporate Tax Act and Article 15(1)2 and 3 of the Corporate Tax Act stipulate as capital transaction, it constitutes a transaction where the net assets of Company A are increased or decreased. As long as the disposal profit should be added to gross income, the taxation disposition added to gross income shall not be deemed as a disposition contrary to the corporate accounting respect principle as stipulated in Article 20 of the Framework Act

C. If new shares of the same face value are issued for the shares acquired at the price below the face value, the amount calculated by deducting the amount actually paid for the acquisition of the shares of the merged company from the face value of the newly issued shares of the merger shall be deemed to be a dividend under Article 19 subparagraph 4 of the former Corporate Tax Act (amended by Act No. 4282 of Dec. 31, 190). The time when the income from the fictitious dividend accrues is deemed to be the business year which includes the date of merger registration under subparagraph 3 of Article 45 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 13195 of Dec. 31, 190), and it shall be taxed as taxable income for the business year, and even if the tax was omitted for the subsequent business year, it shall not be included in the gross income

(d)The book value of new stocks deemed to be a dividend under paragraph (c) includes the amount of deemed dividend. Therefore, gains on transfer of treasury stocks should be calculated by deducting, from their transfer value, the book value including the face value of gratuitous caution and voluntary evaluation marginal profit, and making deduction from the acquisition value on the account book solely on the grounds that the face value of gratuitous stock was not included in the gross income in the business year in which the merger registration is completed, is erroneous in that it misleads

On the first ground for appeal

Article 20 of the Framework Act on National Taxes provides that the standards or practices of corporate accounting which the person liable for tax payment adopts continuously to investigate and determine the tax base of national taxes and which are generally fair and reasonable, shall be respected, and the provisions of the tax law in the proviso are excluded.

According to Articles 57 and 62-2 of the Corporate Accounting Standards, profits from the disposal of treasury stocks are other capital surplus, and treasury stocks are stated in the form of deducting the book value from the capital. According to Article 11 of the Corporate Accounting Standards, the disposal profits of treasury stocks acquired through a merger shall be treated as gains from a merger. Even if the above corporate accounting standards and the corporate accounting rules generally constitute fair and reasonable corporate accounting standards or practices, it is reasonable to view the acquisition and retirement of treasury stocks as a part of the capital reduction procedure or the acquisition and disposal of treasury stocks as a capital transaction because it has the nature of the refund or payment of capital. However, it is reasonable to view the acquisition and disposal of treasury stocks as a transaction related to the increase or decrease of capital, and it constitutes profits and losses of assets subject to corporate tax (see, e.g., Supreme Court Decision 200Nu379, Dec. 37, 1980; Supreme Court Decision 2009Nu37979, Feb. 19, 2009).

As determined by the court below, in case where the plaintiff issued new shares of the merged company that was held in the course of the merger with the non-party company and sold part of the shares of the merged company, the above corporate accounting standards and the accounting rules of the merger are stipulated as capital transactions, even if they are stipulated as capital transactions, they constitute transactions that increase or decrease the net assets of the plaintiff corporation in accordance with the above provisions of the Corporate Tax Act, and so long as the disposal profits should be added to gross income, the disposition of this case added to gross income shall not be deemed as a disposition contrary to

Although the reasoning of the decision of the court below is inappropriate, the decision of the court below is just in determining that the taxation of this case, which received earnings from the disposal of treasury stocks of this case by considering it as asset transaction, does not go against the corporate accounting principles prescribed in Article 20 of the Framework Act on National Taxes, and the decision of the court below is not erroneous in the misapprehension of legal principles which affected the judgment, or in the misapprehension of legal principles,

There is no reason to discuss this issue.

On the second ground for appeal

According to the reasoning of the judgment below, since non-party 1 was merged with non-party 5,924,569 shares of the merged company, which were held by the plaintiff on August 31, 1985, the court below held that the amount of 1,184,913 shares (the face value 5,00 won) should be issued for the acquisition of new shares and the amount of 1,165,130 shares out of 11,57,572,350 shares should be sold to the plaintiff for the purpose of calculating the acquisition value of new shares and the amount of 90,70 shares issued without compensation until the acquisition value of new shares, and that the amount of 1,165,130 shares should not be calculated for the purpose of calculating the acquisition value of new shares and the amount of 90,00 shares transferred without compensation until the acquisition value of new shares and the amount of 90,000 shares transferred without compensation, the defendant did not report the acquisition value of shares to the tax base for transfer without compensation.

First, according to the records (No. 1-7, 10-13), the defendant, as recognized by the court below in the disposition of this case, excluded the face value and voluntary revaluation marginal profit of this case from the book value at the time of transfer, but not from the calculation of the "transfer marginal profit" on the grounds that they are included, it is recognized that the amount calculated by deducting the book value and disposal fees from the transfer value of treasury stocks is "transfer marginal profit" as it is, and it is clear that the amount equivalent to the ratio of the treasury stocks disposed of from the whole treasury stocks among the face value of free stock and voluntary evaluation marginal profit of treasury stocks is included in the gross income for the business year 1987 where the date of

Under the proviso of Article 19 subparagraph 2 of the former Corporate Tax Act (amended by Act No. 4282, Dec. 31, 1990; hereinafter the same) which applies to the following case, stocks shall not be deemed dividends even if they are acquired by capitalizing revaluation reserve fund under the Assets Revaluation Act. Thus, profits therefrom shall not be deemed as gross income, but shall be deemed as "amount necessary for acquiring stocks or investments" and it shall be deemed as "amount necessary for acquiring stocks or investments" as dividends at the time of original adjudication (see Supreme Court Decision 90Nu2154, Feb. 28, 1992; 90Nu2154, Feb. 28, 1992). If, as determined by the court below, the plaintiff delivered new stocks equivalent to the face value of the merged company's stocks held before the merger process, the face value of such new stocks shall be deemed as dividends, and if new stocks were acquired by the defendant for the same purpose as the value of the new stocks acquired by voluntary merger under Article 194 of the former Corporate Tax Act.

In addition, since the book value of new shares deemed to be a dividend includes the constructive dividend, the transfer margin of the treasury stocks of this case shall be calculated by deducting, from their transfer value, the book value including the face value of gratuitous stock and the marginal profit from voluntary evaluation at the time of original adjudication, and making deduction from the acquisition value on the book of account solely on the ground that the face value of gratuitous stock was not included in the gross income in the business year in which the merger is registered is included in the gross income.

Nevertheless, the court below recognized that the taxation of this case was conducted by inclusion in the capital gains of the treasury stocks of this case as the transfer income amount of the treasury stocks of this case, and judged that the above gratuitous par value and voluntary evaluation marginal profit under the premise that the transfer gains of the treasury stocks of this case were legitimate. Thus, the court below did not err in the misapprehension of legal principles as to the legal fiction of unlawful act, dividend, etc. and calculation of stock transfer marginal profit by misunderstanding the facts contrary to the rules of evidence, and it is clear that the above illegality affected the judgment, and therefore, it is reasonable to point out

Therefore, the judgment of the court below shall be reversed and the case shall be remanded to the court below. It is so decided as per Disposition by the assent of all Justices.

Justices Kim Jong-soo (Presiding Justice)