[1] Whether Article 94-2 of the Enforcement Decree of the former Corporate Tax Act becomes invalid as a decision of unconstitutionality by the Constitutional Court on Article 32 (5) of the former Corporate Tax Act (affirmative)

[2] Whether the grounds for disposition can be changed in the disposition of collecting Class A earned income tax based on the disposition of income under Article 94-2 of the former Enforcement Decree of the Corporate Tax Act (affirmative)

[3] Whether the representative director can ratification the income as earned income in case where the income of the corporation was reverted to himself/herself (affirmative)

[1] The Constitutional Court ruled 94Hun-Ba14 and 93Hun-Ba32 delivered on November 30, 1995 that Article 32 (5) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994) is unconstitutional. Meanwhile, Article 94-2 (1) of the Enforcement Decree of the same Act (amended by Presidential Decree No. 14080 of Dec. 31, 1993) provides that the type of income subject to taxation and the person liable to pay taxes shall be deemed to be a delegation order requiring specific and individual authorization of the law. In addition to Article 32 (5) of the same Act, other Acts and subordinate statutes such as the Income Tax Act shall not be deemed to have any ground for delegation of the said provisions. Thus, the Constitutional Court's decision of unconstitutionality has lost the effect of Article 32 (5) of the same Act, as well as Article 94-2 of the same Act established under the delegation of the same Act.

[2] The change of the reason for disposition is allowed to claim the constructive income under the items of the Class A earned income tax, the tax base of which is identical to the tax base, as the actual income, within the scope of the same subject-matter of lawsuit. Thus, separate from the disposition of income which is deemed to have been paid pursuant to Article 94-2 of the Enforcement Decree of the Corporate Tax Act (amended by the Presidential Decree No. 14080 of Dec. 31, 1993), the tax authority may claim and prove the facts that the income has been actually accrued to the representative director and the type of the income.

[3] In a case where a corporation's profit has been disclosed from the company and the representative's income has been reverted to the corporation's income under the Income Tax Act, the issue of which kind of income is, in principle, determined by considering the intent of the payer and the person to whom the income accrued, the basic legal relations between the person to whom the income accrued and the corporation, the income amount, and the circumstances leading to the attribution of the income, and it does not exclude the room for ratification by indirect facts. In a case where the representative director of the corporation discharges the corporation's profit from the corporation to the representative director by paying processing fees to him/her as a result

[1] Article 32 (5) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994); Article 94-2 (1) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14080 of Dec. 31, 1993) / [2] Article 19 of the Administrative Litigation Act; Article 32 (5) of the former Corporate Tax Act (amended by Act No. 4804 of Dec. 22, 1994); Article 94-2 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14080 of Dec. 31, 1993); Article 21 (1) 1 of the former Income Tax Act (amended by Act No. 4803 of Dec. 22, 1994; see current Article 20 (1) 1 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 14814 of Dec. 14, 194948 of Dec. 2941 of the Act)

[1] [2] Supreme Court Decision 97Nu2429 delivered on October 24, 1997 (Gong197Ha, 3683) / [1] Constitutional Court Order 94HunBa14 delivered on November 30, 1995 (Gong13193 and 40), Constitutional Court Order 93HunBa32 delivered on November 30, 1995, Supreme Court Decision 96Nu1627 delivered on April 26, 1996 (Gong196Sang, 1767 delivered on May 16, 197) / [2] Supreme Court Decision 96Nu8796 delivered on May 16, 197 (Gong197Sang, 197 and 1787 delivered on April 16, 1997; Supreme Court Decision 90Nu97989 delivered on September 197, 199; Supreme Court Decision 97Nu9797989 delivered on May 197, 19797.

Han-dong Housing Co., Ltd. (Attorney Lee Dong-soo, Counsel for defendant-appellee)

The Head of Dong Busan District Tax Office (Attorney Yoon Young-young, Counsel for the defendant-appellant)

Busan High Court Decision 95Gu634 delivered on February 14, 1997

The judgment below is reversed, and the case is remanded to Busan High Court.

We examine the grounds of appeal.

1. On the third ground for appeal

According to the reasoning of the lower judgment, the lower court determined that the Plaintiff’s disposal of KRW 2,315,693,70 for the portion of the business year from January 1, 1991 to December 31, 1992 as processed assets to the apartment house account, etc. as stated in the judgment, and that the Plaintiff’s disposal of KRW 94,00 for the portion of the business year from January 1, 1991 to December 31, 31, 1997 was unlawful under the proviso of Article 94 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 1984, Dec. 31, 1992; Presidential Decree No. 25965, Jan. 1, 1992; Presidential Decree No. 2981, Dec. 31, 1996; Presidential Decree No. 25196, Mar. 1, 196>

On November 30, 1995, the Constitutional Court decided 94HunBa14 and 93HunBa32 delivered on the same day, and decided 93HunBa14 delivered on November 30, 1995, Article 32(5) of the Act is unconstitutional because it entirely works to the Presidential Decree, which is a subordinate law, without presenting any standard, for the taxation requirements related to the disposition of income corresponding to the basic matters pertaining to the rights and obligations of the citizens. Meanwhile, Article 94-2(1) of the Enforcement Decree of the Act is a delegation order requiring specific and individual authority of law as a provision governing the type of income subject to taxation and the limitation of delegated legislation, and Article 32(5) of the Income Tax Act other than Article 32(5) of the Act does not have any ground for delegation of the Act, and thus, Article 94-2 of the Enforcement Decree of the Act as well as Article 94-6(6) of the Act established by delegation of the above provision is invalid (see, e.g., Supreme Court Decision 96Nu696.

In the same purport, the court below is just in holding that Article 94-2 (1) of the Enforcement Decree of the Act is no longer applicable to the disposition of this case, and there is no error of law by misunderstanding legal principles as otherwise alleged in the ground of appeal.

2. On the first ground for appeal

According to Articles 142(1) and 143 of the former Income Tax Act (amended by Act No. 4803, Dec. 22, 1994; hereinafter the same), a person who pays dividend income, wage and salary income belonging to Class A, and other income to a resident or a nonresident in Korea shall withhold income tax from the person, and pay income tax until the 10th day of the month following the month in which the date of collection falls. As in this case, the assertion of constructive income under the items of tax withheld Class A, which are identical tax base and tax amount, differently from the disposition of disposal deemed as having paid the above amount of income pursuant to Article 94-2 of the Enforcement Decree, it shall be allowed to change the reason for disposition as within the same scope. Thus, the tax authority may assert and prove the fact that it actually reverted to the representative director and the type of such income (see Supreme Court Decision 97Nu4747, Oct. 24, 197).

Nevertheless, the court below erred in the misunderstanding of legal principles as to the change in the reason for disposition in a tax lawsuit, as long as Article 21 (1) 1 (a) of the Income Tax Act provides for "the amount disposed as a bonus under the Corporate Tax Act" in item (c) as it is separate from the earned income under Article 21 (1) 1 (a) of the Income Tax Act, and the amount disposed as a bonus under the Corporate Tax Act is not effective.

3. On the second ground for appeal

In a case where a corporation's income is distributed to the company's income as a result of the outflow of the company from the company, the issue of which kind of income is, in principle, the question of whether the income falls under the category of income under the Income Tax Act shall not be excluded from the scope of ratification by indirect facts as a matter of consideration of the intent of the payer and the person to whom the income accrue, the basic legal relations between the person to whom the income accrue, the income amount, and the circumstances leading to the attribution of the income (see the above 97Nu447). Meanwhile, Article 21 (5) of the Income Tax Act provides that "necessary matters concerning the scope of earned income shall be prescribed by Presidential Decree", and Article 43 of the Enforcement Decree of the same Act (amended by Presidential Decree No. 14467 of Dec. 31, 194) so received shall include the amount falling under each of the following subparagraphs, while subparagraph 1 provides that "the scope of earned income shall

According to the records, the plaintiff, as the repayment of the processing fees to the non-party representative director, withdrawn from the corporation's income in the business year 1991, the amount of KRW 813,380,063, and KRW 3,429,756,160 in the business year 192, and deposited them into the non-party's personal deposit account. There is no assertion or proof as to the fact that these amounts were used for the plaintiff's business, and the plaintiff can also be seen as if he returned the amount of the withdrawal from the non-party to the plaintiff's account after the disposition of this case was returned from the non-party to the plaintiff's account, and then he again accounts as the representative director's provisional payment. Thus, if the representative director of the corporation discharges the corporation's income to the non-party representative director in the above position, it can be confirmed that such income constitutes a bonus to the representative director or other similar temporary income.

Nevertheless, the court below held that there is no evidence that the defendant actually paid the amount disposed of as bonus under the Corporate Tax Act to the representative director as bonus. The court below erred by misapprehending the legal principles on the scope of wage and salary income, failing to exhaust all necessary deliberations, or violating the rules of evidence, which affected the conclusion of the judgment. The argument pointing this out has merit.

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Cho Chang-hun (Presiding Justice)