In case where a person, who possesses one house and temporarily possesses two houses by acquiring another house before transferring such house, is married to the person who possesses another two houses before transferring such house, and one household transfers one house in such status as having four houses, whether it is subject to the exemption from capital gains tax under Article 155 (1) or (5) of the Enforcement Decree of the Income Tax Act (negative)

Article 89 subparag. 3 of the former Income Tax Act (amended by Act No. 6781 of Dec. 18, 2002) and Articles 154(1), 155(1), and 155(5) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17751 of Oct. 1, 2002) shall be interpreted in accordance with the legal text, unless there are special circumstances, to prevent the taxation requirements or the requirements for non-taxation or tax reduction or exemption, and the interpretation of tax laws and regulations shall be prohibited in light of the following: (a) a person who owns one house and temporarily possesses two houses by acquiring another house before transferring the house; and (b) a person who possesses two houses while one household possesses four houses is married with another; and (c) a person who possesses four houses shall not be subject to non-taxation under Article 155(1) or (5) of the Enforcement Decree of the said Act.

Article 89 subparagraph 3 of the former Income Tax Act (amended by Act No. 6781 of Dec. 18, 2002); Article 154 (1) and Article 155 (1) and (5) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 17751 of Oct. 1, 2002)

Plaintiff

The superintendent of the tax office

Seoul High Court Decision 2007Nu12851 decided Dec. 4, 2007

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

We examine the grounds of appeal.

Article 89 subparagraph 3 of the former Income Tax Act (amended by Act No. 6781 of Dec. 18, 2002) provides that "one house for one household as prescribed by the Presidential Decree and any income accruing from the transfer of a specific land attached thereto shall not be subject to capital gains tax." Article 154 (1) of the former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 17751 of Oct. 1, 2002; hereinafter "former Enforcement Decree") provides that "where one household owns one house in Korea as of the transfer date and has three or more years of retention period of the relevant house, capital gains tax shall not be imposed on the relevant house." Article 155 of the former Enforcement Decree of the Income Tax Act provides that "where one household possessing one house for one household comes to possess two houses temporarily by acquiring another house before transferring the relevant house, the former Enforcement Decree of the Income Tax Act provides that "where one household possessing two houses first transfers the house within one year from the date of the acquisition of the house, one household possessing one house and the former house within 15 years from the date."

In full view of the language and purport of the above provisions and the legislative purport of the principle of no taxation without law, or the interpretation of tax laws by blocking the requirements for tax exemption or tax exemption, barring any special circumstance, and it is not allowed to expand or analogically interpret the said provisions without any reasonable reason. In full view of the fact that, while owning one house, a person who temporarily possesses two houses by acquiring another house before transferring the said house to another person who possesses two houses before acquiring another house, and thus, one household transfers one house under the status of having four houses, it shall not be subject to capital gains tax exemption under Article 155(1) or (5) of the former Enforcement Decree.

Nevertheless, the lower court determined that the transfer of the instant house constitutes a “person who possesses one house” under Article 155(5) of the former Enforcement Decree, on August 22, 2002, on the ground that the Plaintiff, who owned the instant house, acquired another house on August 22, 2002, married with the Nonparty holding another two houses on October 19, 2002, and transferred the instant house on November 27, 2002. In so doing, the lower court erred by misapprehending the legal doctrine on non-taxation requirements for one household, thereby adversely affecting the conclusion of the judgment.

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Hong-hoon (Presiding Justice)