Standard of determining whether income from the sale of real estate belongs to business income under the Income Tax Act or belongs to capital gains;

Whether the profit from the sale and purchase of real estate falls under the business income under the Income Tax Act or is subject to the transfer income tax under the Income Tax Act shall be determined by considering the circumstances such as whether the sale and purchase aims to take profit and whether the sale and purchase is deemed to have continuity and repetition of business activities in light of the size, frequency, mode, etc. of business activities.

Article 20 of the Income Tax Act, Articles 36 and 39 of its Enforcement Decree

Supreme Court Decision 83Nu66 Decided September 11, 1984

[Judgment of the court below]

head of Sung Dong Tax Office

Seoul High Court Decision 83Gu740 delivered on May 9, 1985

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

The grounds of appeal No. 1 are examined.

Article 20 (1) of the Income Tax Act lists the income generated from the real estate business which is subject to the income tax, and delegates the scope of business income to the Presidential Decree under paragraph (3) of this Article. Accordingly, Article 36 of the Enforcement Decree of the Income Tax Act provides that real estate business is real estate sales business. Article 39 of the Enforcement Decree of the Income Tax Act provides that the scope of this business shall be governed by the provisions of this Enforcement Decree and the Korean Standard Industrial Classification Table as of the end of the pertinent year publicly notified by the Director General of the Economic Planning Office. The above Korean Standard Industrial Classification Table provides that real estate (1) is leased and operated of housing, apartment buildings and non-residential buildings, industrial and non-residential buildings, industrial activities such as lease, purchase, sale, management and management of real estate from their own account, and industrial activities such as housing, housing site development and real estate agency and management activities such as real estate agency and sales of real estate, real estate (2) commercial, industrial and residential buildings, agricultural land, mining property, building and other rights to land, and real estate which are not subject to real estate appraisal or mortgage.

Therefore, the issue of whether the profit from the sale and purchase of real estate belongs to the business income under the Income Tax Act or is merely subject to the transfer income tax shall be determined by considering the circumstances such as whether the sale and purchase is for profit and the continuity and repetition of business activities can be seen as business activities in light of the size, frequency, mode, etc. (see Supreme Court Decision 83Nu66 delivered on September 11, 1984).

According to the court below's decision, the plaintiff transferred the land of this case to the non-party company of this case, as seen above, because it was difficult for the plaintiff to procure construction expenses, the plaintiff waived the original plan and transferred the land of this case to the non-party company of this case after construction of the office building of the 4th and the 14th floor above the land of this case to the non-party company of this case, which was owned by the plaintiff since 1972 at 1,015,200 won, and the 2,282,610,000 won, and the 12th floor under construction on the land of this case, which was completed by constructing a large scale commercial office building on the land of this case to sell or rent it to the non-party company of this case, and even if the plaintiff completed construction work on the land of this case and transferred it to the non-party company of this case, it cannot be said that the land of this case and the building of this case for the purpose of real estate sales business without any purpose or transfer it.

Therefore, even if the transfer of this case was intended as part of the real estate sales business conducted by the Plaintiff, as it was originally claimed by the Plaintiff, and did not sell or lease a building as part of the real estate sales business, and it did not sell or lease the land and the building under construction on the land, it constitutes a real estate business under the Income Tax Act, the court below's decision that the transfer of this case constitutes a real estate business under the Income Tax Act is erroneous by misapprehending the legal principles on real estate sales business under the Income Tax Act, thereby making it contrary to the purport of the above party

Therefore, the judgment of the court below without the necessity of judgment on the remaining grounds of appeal Nos. 2 and 3 shall be exempted from reversal, and the case shall be reversed and remanded to the Seoul High Court. It is so decided as per Disposition with the assent of all participating judges.

Justices Lee Chang-chul (Presiding Justice)