The time of attribution of other income following the cancellation of a sales contract shall be the year 2010 when the sales contract was lawfully rescinded.

The time of attribution of other income following the cancellation of the instant sales contract shall be the year 2010 when the said sales contract was lawfully rescinded.

Article 21 of the former Income Tax Act

2014Guhap58366 global income and revocation of such disposition

HumanT

port of origin

July 7, 2015

August 25, 2015

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

On December 1, 2013, the Defendant revoked the disposition of imposition of global income tax of KRW 00,000 for the Plaintiff on December 1, 2013.

1. Details of the disposition;

A. The Plaintiff is a major shareholder of KK (hereinafter “K”) and a representative director of KK (hereinafter “K”) who engages in the manufacture of automobile parts and assembly metal as a target business.

B. On October 27, 2009, the Plaintiff entered into a sales contract with LL Co., Ltd. (former trade name: MM: hereinafter “MM”) on the following terms with respect to KK stocks and management rights owned by himself/herself and his/her spouse as his/her spouse (hereinafter “instant sales contract”).

C. On October 27, 2009, the date of the conclusion of the instant sales contract, the Plaintiff received KRW 1,000,000 from MM as down payment pursuant to Article 3(1) of the said sales contract, and issued the actual share certificates of KRW 170,000 among the shares issued by KK, owned by the Plaintiff, to MM.

D. On January 21, 2010, the Plaintiff urged MM to pay an intermediate payment of KRW 6,000,000 until January 25, 2010, inasmuch as MM was not paid as a candidate designated by MM at the temporary general meeting of shareholders of KK, even though MM was all selected and appointed as a director, the Plaintiff had urged MM to pay an intermediate payment of KRW 6,00,000. However, MM did not perform this. On January 26, 2010, the Plaintiff revoked the sales contract on the ground that MM did not perform its obligation to pay an intermediate payment under Article 3(3) of the instant sales contract, and subsequently, ordered MM to confiscate the down payment of KRW 1,00,000,000, and separately, the Plaintiff expressed its intent to demand the payment of KRW 35,000,000,000.

E. Meanwhile, MM transferred the instant shares to YangG as a collateral to its creditor, and the twoGM sold the instant shares to a third party around 2010, as MM did not perform its obligation.

F. Accordingly, on February 9, 2012, the Defendant imposed capital gains tax of KRW 406,300,000 (i.e., 170,000 x 2,390 won per share price at the time of conclusion of the instant sales contract) on KRW 44,09,60, which is the price for the transfer of the instant shares among KRW 1,00,000,000 received as down payment by the Plaintiff from the Plaintiff on February 9, 2012, deeming that the instant shares were distributed to a third party, and imposed capital gains tax of KRW 593,70,000 (i.e., 1,000,000 - 406,300,000 - 400,000,000,000) on the said down payment, on the grounds that it constitutes a disposition of imposition of penalty of KRW 210,210 (hereinafter referred to as “other income”).

[Reasons for Recognition] Facts without dispute, Gap evidence 1 through 3, 5, 8 through 10, 18, Eul evidence 1 through 3, 4-1, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiff's cause of claim

Although the instant sales contract had been lawfully rescinded, the Plaintiff was unable to receive the instant shares, and KRW 1,00,000,000,000, which the Plaintiff received as down payment, falls under the actual transaction price at the same time as agreed upon between the parties to the instant contract with respect to the instant shares, and thus, it cannot be deemed that there was any income exceeding the damages to the payment itself, which forms the original content of the instant contract, and thus,

B. Relevant statutes

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

C. Determination

1) As to whether it constitutes other income

Article 21 (1) 10 of the former Income Tax Act provides that "the penalty or indemnity received due to the cancellation or termination of a contract for other income." Article 41 (7) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22003, Jan. 27, 2010; hereinafter the same) provides that "the compensation for damages received due to a breach or termination of a contract for property rights and refers to the value of money or other goods to compensate for damages in excess of the original payment itself regardless of its title." In this case, if the value of the money, etc. returned due to the breach or termination of a contract does not exceed the total amount paid initially under the contract, it shall not be deemed that the money, etc. is above the value of the original payment itself exceeds 10 billion won. It shall not be deemed that the sale contract of this case was lawfully cancelled as 10 billion won, and it shall not be deemed that the sale contract of this case was cancelled by the plaintiff's expression of intention to pay damages to the original payment itself."

Therefore, it is legitimate to view that the remaining KRW 593,70,000,000, which deducts the said KRW 406,300,000 from the down payment of KRW 1,000 under the instant sales contract (=1,000,000 - 406,300,000) as constituting “the penalty and compensation (other income) received due to the breach or termination of the contract under Article 21(1)10 of the former Income Tax Act” (Article 21(1)10) of the former Income Tax Act, is legitimate, and this is not different solely on the ground that the transfer income tax was imposed on the transfer of the instant shares, even though the instant sales contract was rescinded.

2) As to the year to which the other income belongs

In order to ensure that income subject to taxation has been realized, even if it is not necessary until it is realized in reality, the right to generate income should be mature and confirmed to a considerably high level in its realization possibility, and therefore, it is merely formed without reaching such a degree. Whether the right to generate income is mature and finalized or not shall be determined by comprehensively taking into account the nature and content of each specific right and various matters of law and fact-finding (see, e.g., Supreme Court Decision 96Nu2200, Apr. 8, 1997).

According to Article 21(1)10 of the former Income Tax Act, penalty and compensation received due to a breach or termination of a contract shall be one of the other income. Under Article 50(1)3 of the former Enforcement Decree of the Income Tax Act, the time of receipt of the total amount of other income shall be the date of receipt thereof. In light of the above legal principles, where a seller concludes a sales contract and a down payment received by a seller becomes a penalty due to a buyer’s default, it is reasonable to regard the time of receipt of other income as the date of termination of a sales contract, barring special circumstances. As to the instant case, the Plaintiff’s demand for payment of KRW 6,00,000 according to the instant sales contract to MM on January 21, 200 and did not perform it, the Plaintiff’s declaration of intention to cancel the sales contract on January 26, 201, 300 won after deducting the remainder of the sales contract from the sales contract’s 00,000 won, 3000 won after the instant contract cancellation.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.