Where income generated from the transfer of forest trees from the transfer of forest trees along with forest land falls under the business income, the subject matter of taxation of the transfer income tax following the transfer of forest land, the criteria for determining whether the income from the transfer of forest trees falls under the business income, and the subject matter of taxation of the transfer income tax, if there is no growing activity to produce forest trees even if the forest trees were transferred along with the forest land, or business feasibility is not recognized even if the growing activity is

In light of the language, purport, structure, etc. of the provisions of Article 19(1)1 and (3) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009); the main text of Articles 29, the main text of Article 51(8) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010); and the former Korea Standard Industrial Classification (amended by Act No. 2007-53, Dec. 28, 2007) growing business (amended by Act No. 2007-53, Jan. 1, 2008; etc., it is reasonable to view that, in principle, where income generated from the transfer of forest trees together with forest land falls under business income, only the remaining income generated from the transfer of forest land is subject to imposition of capital gains tax for the purpose of growing, and whether the forest land is subject to imposition of capital gains tax for growing purposes and its income even if there were no special circumstances.

Article 19 (1) 1 and (3) of the former Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); Article 29 (current Deletion) and Article 51 (8) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010);

Plaintiff (Lisung Law LLC, Attorneys Hap Hong et al., Counsel for the plaintiff-appellant)

Chuncheon Director of the Tax Office

Seoul High Court Decision 2010Nu431 decided February 9, 2011

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Article 19(1) of the former Income Tax Act (amended by Act No. 9897, Dec. 31, 2009; hereinafter “Income Tax Act”) provides for “income accruing from forestry” in subparagraph 1 by listing the income subject to taxation as business income. Meanwhile, the main text of Article 29 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034, Feb. 18, 2010; hereinafter “Enforcement Decree of the Income Tax Act”) delegated by Article 19(3) provides that “The scope of businesses under each subparagraph of Article 19 of the Act shall be based on the Korea Standard Industrial Classification except as otherwise provided in this Decree with respect to the scope of business income generated under each subparagraph of the same Article.” The former Korea Standard Industrial Classification (amended by Act No. 2007-53, Dec. 28, 2007) stipulates that “income from forestry shall be included in forest land for the purpose of calculating the total amount of income generated from forestry (i.e., forest land) and (ii)”. 201).

In light of the language, purport, structure, etc. of these regulations, in cases where forest trees are transferred along with forest land, it is reasonable to view that, in principle, income generated from the transfer of forest trees constitutes business income, only the remaining income, excluding that generated from the transfer of forest trees, is subject to taxation of capital gains tax following the transfer of forest land. In such cases, whether income generated from the transfer of forest trees constitutes business income ought to be determined in accordance with ordinary social norms by taking into account whether activities for growing for the production of forest are conducted for profit, the substance, scale, period, mode, etc. of the forest, to the extent that business activities can be seen as business activities, and whether there was continuity and repetition of the forest trees, even if the forest trees were transferred along with forest land, barring any special circumstance to deem that the forest trees was subject to transactions separate from the forest land, the entire income generated from the transfer of forest land is subject to taxation of capital gains tax, and whether the forest land and the forest are subject to assessment of neighboring forest land should be objectively determined by comprehensively taking into account the transaction purpose of the parties, details of the forest land, and its present value.

2. After finding the facts as stated in its holding, the lower court determined that the disposition rejecting the Plaintiff’s request for correction was lawful on the ground that it is reasonable to deem that the Plaintiff did not transfer the forest land in this case, not that it was transferred in the course of engaging in forestry, but that it was partially transferred the forest land as part of the transfer of the forest land in this case, in light of the following: (a) the instant sales contract only stipulates the special terms on the burial site; (b) the Plaintiff did not regard the trees on the ground as a separate trade object because there was no content on the trees on the ground; and (c) there was no other evidence to prove that

3. Examining the reasoning of the judgment below in light of the aforementioned legal principles and records, the judgment of the court below is just and acceptable, and contrary to the allegations in the grounds of appeal, there is no error of law by misapprehending the legal principles on Article 19 of the Income Tax Act and Article 51 (8) of the Enforcement Decree of the Income Tax

4. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Min Il-young (Presiding Justice)