Cho High Court Decision 2008Do3407 ( December 31, 2009)

Where unsold prices are transferred after long-term lease, such transfer shall apply to capital gains;

In light of the lease period, it is difficult to regard the lease of unsold price as being made for the temporary purpose prior to sale and purchase, and it is reasonable to regard the lease as transfer income other than business income as transfer income, since the real estate rental business is transferred in substance in terms of the fact that unsold price is included in the unsold price as fixed assets due to the injury of the

The contents of the decision shall be the same as attached.

1.Pambed ○

2.Ming Doz.

1.The Head of Seocho Tax Office

2.Seongdong Head of Tax Office

1. The plaintiff's claims are all dismissed.

2. The plaintiffs shall bear the litigation costs.

Defendant Seocho District Tax Office’s imposition of KRW 93,757,840 of global income tax for the year 2005, and KRW 59,840,70 of global income tax for the year 2006 on July 1, 2008, and each imposition of KRW 6,103,340 of global income tax for the year 2005, and KRW 9,394,460 of global income tax for the year 2006 by the Defendant Sungdong Tax Office against Plaintiff ParkB.

1. Circumstances of dispositions;

A. The plaintiffs newly constructed a commercial building located in ○○○-dong 115-5, ○○-dong 115-5 (hereinafter referred to as “△△△△△△”), and transferred 32 partitioned buildings in 193, 7 divided buildings between 1994 and 1999, and 29 divided buildings in 205 and 206 (hereinafter referred to as “the above divided buildings”).

B. The Plaintiffs reported the transfer portion as business income in 1993, and the transfer portion between 194 and 199 as transfer income, and the transfer portion among the partitioned buildings of this case was respectively reported as business income.

C. As to business income from the transfer of the instant partitioned buildings, the Plaintiffs calculated the sum of the revenue amount as KRW 1,861,774,99, the sum of the necessary expenses as KRW 3,160,50,95, and the sum of the income amount as KRW 1,298,75,956 (i.e., KRW 1,861,74,99 - KRW 3,160,550,955) (i.e., KRW 1,861,74,99 - KRW 3,160,99), and deducted KRW 1,298,75,956 from other income (income, real estate rental income, business income, and dividend income) and reported the remaining deficits as losses carried forward.

D. After conducting a personal tax integration investigation on the plaintiffs between May 27, 2008 and May 30, 2008, the head of the Seocho District Tax Office deemed the income from the transfer of the partitioned building of this case as not income but income from transfer, and notified the result of the investigation to the head of the Sungdong Tax Office having jurisdiction over the domicile of the plaintiff ParkbB.

E. According to the above findings, the Defendants denied the losses calculated and reported as above paragraph (c) and revised the tax base for the year 2005 and the year 2006. On July 1, 2008, the Defendants imposed and notified each of the comprehensive income tax as stated in the claims against the Plaintiff ParkB, and the global income tax for the Plaintiff ParkB as well as KRW 107,759,090 for the global income tax for the year 2005, and KRW 77,256,850 for the global income tax for the year 2006. The Defendants re-issuedd and notified the amount of the tax notified to the Plaintiff ParkB on August 20, 208 (hereinafter referred to as “each of the dispositions of imposition of global income tax and global income tax for the Plaintiff ParkB”).

F. On September 30, 2008, the Plaintiffs were dissatisfied with each of the instant dispositions and filed an appeal seeking the revocation of each of the instant dispositions with the Tax Tribunal, but the appeal was dismissed on December 31, 2009.

[Ground of recognition] Facts without any dispute, Gap's 1, 2, 4, 5, Eul's 1 to 12, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

The plaintiffs newly constructed a commercial building of △△△ for the purpose of sale, not for the purpose of leasing business, and completed and sold preservation registration by unit, and they temporarily leased the commercial building in order to minimize losses due to the long-term unsold situation while endeavoring to sell the unsold commercial buildings. Therefore, each disposition of this case on the premise that the income from the transfer of the partitioned building of this case is not a business income, but a transfer income

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

(i)The details of the business registration of the plaintiffs;

The Plaintiffs registered their business with respect to △△△ as follows:

(a)the opening date: October 26, 1992;

(b) Trade name: △△;

c)Location: △△△ business address;

(d)The primary category of business: the non-residential building leasing business (the first detailed classification of the buildings was registered as a store, but is corrected as a store on March 16, 199).

(e)Sub-type of business: Real estate trading business [the first detailed classification of real estate (not less than 2 years but less than 5 years of land holding) was registered, but corrected to real estate trading (not more than 5 years of land holding)];

f)Date of closure: June 30, 2005

2) Details of transfer of each divided building of △△△ Party

(A) The plaintiffs transferred 32 sections in 1993 as completed by △△△ in 1993, 5 sections in total in 1994, 1 sections in the first floor in 1995, and 1 sections in the first floor in 1999. Each of the above transferred buildings is the first floor in the underground, the first floor, the second floor and the fifth floor.

B) In 2005, the Plaintiff divided and transferred the instant sectioneds to five successors.

3) The official capacity ratio of △△△△△

iv)Accounting records on the instant partitioned buildings of the plaintiffs

A) From the date of sale in 1993, the Plaintiff appropriated unsold buildings, including the instant sectioned buildings, into the land and buildings of tangible fixed assets, and did not include depreciation costs from 2001 to 2004 (16,51,552 won, 4,969,190 won, 2003, 202,728,086 won, 1,497,718 won, 2004).

B) In 2004, the Plaintiff appropriated the instant partitioned building as KRW 761,971,266, building 2,386,016,149 (excluding cumulative depreciation of KRW 7,50,00), but in 2005, the Plaintiff sold the instant partitioned building and dealt with accounting at KRW 3,147,987,415, and sales at KRW 1,850,00,000, and based on the above amount, appropriated the aggregate of necessary expenses for business income from the transfer of the instant partitioned building as KRW 3,160,50,50,9555.

(v) Other circumstances.

A) At the time of 2005, the Plaintiff Park Jong-A operated a non-residential real estate rental business in △-dong, △-dong, 1194-9, △-dong, 1194.

B) At the time of 2005, the Plaintiff ParkB operated the non-residential real estate rental business in the trade name of 445-19 sections 44-2, △△-dong 445-19, △△-dong, △△△-dong.

C) The Plaintiff entered into a sales contract on November 26, 1990 with respect to 115-5 square meters in ○○-gu, ○○-dong, 115-5, 789 square meters, which is the site of △△△, but the transfer registration was made on November 27, 1995.

[Ground of recognition] Facts without any dispute, Gap 1, 3, 5, 8, Eul 9 to 16, the purport of the whole pleadings

D. Determination

1) Whether the income from the transfer of real estate is business income or capital gains under the Income Tax Act shall be determined according to the ordinary social norms, taking into account the transferor’s acquisition and holding of real estate, whether the transfer is made, the scale, frequency, mode, other party, etc. of the transfer, as well as the continuity and repetition of business activities to be seen as profit. In making such determination, not only the transfer of real estate concerned but also the transfer of real estate owned by the transferor, shall take into account all the circumstances before and after the transfer of the real estate at issue (see Supreme Court Decision 9Du5412, Apr. 24, 2001).

2) In full view of the following circumstances revealed in light of the details of the instant disposition and the facts of recognition as to the instant case, it is reasonable to see that the income from the sale of the partitioned building of this case constitutes capital gains, not business income.

A) The plaintiffs registered the "store" as one of the business types from the time of the initial registration of the business operator. As seen in the above facts, the "store" refers to one of the types of non-residential building lease business at the time of business registration. Since the plaintiffs completed their registration of ownership transfer with respect to the site after two years or more from the completion of the construction of the △△△△, it is appropriate to indicate the "store" as to the real estate lease business at the time of business registration. Therefore, it is difficult to view that the plaintiffs added a type of business unrelated to their own business formally to comprehensively apply for the scope of business without the intent to conduct the real estate lease business. Considering that the period of the plaintiffs' operation of the real estate lease business with respect to the sectioned building in this case is about 12 years, the plaintiffs seems to have carried on the real estate lease business in full terms of part of the partitioned building of △△△ including this case, rather than temporary lease while being held for the purpose of sale by the △△△.

B) The divided buildings of △△△△ have not been transferred for a considerable period of time at the time of completion, and the divided buildings of this case have been transferred at once in 2005, and it is insufficient to recognize that the scale of transfer has a big difference by year as above due to external factors, such as economic depression, etc. The difference between the above transfer scale and the transfer scale seems to primarily result in the operation and closure of the real estate leasing business with respect to the divided buildings of △△△△△△△△.

C) The Plaintiff, by 2004, appropriated the instant sectioneds as inventory assets rather than tangible assets, and reported the income from the transfer of a sectioneded building between 1994 and 199 as capital gains. The time of the transfer of the instant sectioneds, the Plaintiff operated a separate real estate leasing business. Such circumstances support that the Plaintiffs were the purpose of holding the instant sectioneds to contribute to the real estate leasing business.

D) In light of the fact that the Plaintiff appropriated the instant partitioned buildings not as inventory assets but as tangible fixed assets, and made depreciation of buildings, it is difficult to deem that the Plaintiffs were holding the instant partitioned buildings for sales purposes, not for lease, solely on the ground that the Plaintiffs did not immediately depreciation the instant partitioned buildings for a considerable period of time.

E) Comparing the public utility rate of the entire sections of △△△ and the instant sections, the level is similar in 1997, and the public utility rate of the instant sections was considerably low in 2000. The Plaintiffs seem to have operated rental business in full scale with respect to the instant sections of this case. Even if the construction company working for ParkA engaged in the new construction and sales business of the apartment, it is difficult to view that the Plaintiffs operated the real estate sales business based on such circumstances.

F) The Plaintiff closed the lease business of the instant sectioned and transferred the instant sectioneded sections, and opened an accounting process as if they acquired real estate sales business in the current time by appropriating the instant sectioned sections as the sales business of the current commodities according to the book value at the time, and sold them in the current time. The Plaintiffs did not newly acquire and transfer the instant sectioned sections in 2005, but used them for real estate rental business, but transferred them following the closure of real estate rental business, so such accounting process is not allowed as it does not fit to the substance of transaction.

G) In light of the timing and circumstances of the construction, lease, transfer, etc. of the partitioned buildings of this case, income from the transfer of the partitioned buildings of this case is difficult to be deemed as arising from the business activities of acquiring and selling real estate for the purpose of marginal profit from the sale and purchase of real estate, and it is reasonable to view that the income from the transfer of the buildings possessed for a considerable period of time in the real

3.In conclusion

The plaintiffs' claims are dismissed in entirety for lack of reasonable grounds.