Whether “land not used for business due to justifiable grounds, such as alteration of urban planning after acquiring the relevant land” under Article 83-5(1)12 of the former Enforcement Rule of the Income Tax Act includes “land, the use of which is prohibited or restricted period due to alteration, etc. of existing urban planning after acquisition of such land” (affirmative), and in this case, the meaning of the period not deemed as non-business use.

In full view of the purport and language of the relevant provisions such as Article 104-3(2) of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007), Article 168-14(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008), Article 83-5(1) of the former Enforcement Rule of the Income Tax Act (amended by Ordinance No. 15 of Apr. 29, 2008; hereinafter “Enforcement Rule”), the procedure and effect of the alteration of urban planning, etc., “land which is not used for business due to justifiable reasons, such as the alteration of urban planning after its acquisition, etc.” under Article 83-5(1)12 of the Enforcement Rule, the period of prohibition or restriction of new use of land due to the alteration of urban planning after its acquisition, etc., including the extended period of prohibition or restriction of use after its acquisition.”

Article 104-3 (2) of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007), Article 168-14 (1) 3 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008) (see current Article 168-14 (1) 4), Article 83-5 (1) 12 of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance of Apr. 29, 2008)

Plaintiff (Attorney Yoon Young-chul et al., Counsel for plaintiff-appellant)

The director of the North Incheon National Tax Office

Seoul High Court Decision 2011Nu20002 decided October 27, 2011

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

The grounds of appeal are examined.

Article 104-3 (2) of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007; hereinafter “Act”) and Article 168-14 (1) 3 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008; hereinafter “Enforcement Decree”) delegated by Article 83-5 (1) of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 15 of Apr. 29, 2008; hereinafter “Enforcement Rule”) stipulate the period for which the land is used as non-business when determining whether it falls under the non-business land of which capital gains tax is heavy under each subparagraph, and subparagraph 12 of Article 83-5 (1) of the former Enforcement Rule of the Income Tax Act provides that “where the land concerned is not used for business due to justifiable reasons, such as the alteration of urban planning, etc. after the acquisition of the land concerned, the period.”

The legislative purpose of the capital gains tax is to restrain speculative demand for land by classifying land for non-business as land owned by an individual without using it for productive purpose according to its actual demand and by imposing capital gains tax on it (see Supreme Court Decision 2010Du17281, Oct. 25, 2012). However, even in cases where land cannot be used for productive purpose due to the public interest or inevitable cause or inevitable cause, it is unreasonable to impose capital gains tax on the land for non-business in light of the fact that it is unreasonable to impose capital gains tax on the land for non-business. Thus, Article 104-3(2) of the Act, Article 168-14(1) of the Enforcement Decree of the Act, Article 83-5(1) of the Enforcement Rule, etc. of the Enforcement Rule shall not be deemed to have been used for non-business purpose during the period in which such cause exists, taking into account the purport and text of the relevant provision, the content thereof, and the procedure and effect of the urban planning after the alteration of land, etc.

According to the reasoning of the judgment of the court below, on December 28, 1994, the Mayor of Incheon Metropolitan City as the implementer on December 28, 1994, and as the head of Seo-gu Incheon Metropolitan City, Seo-gu, Incheon Metropolitan City (hereinafter omitted), the project period of which is 343,700 square meters from December 1994 to December 1997, the land category of which is the land of this case was authorized and publicly announced. The land readjustment project was extended on December 27, 2003 when the Plaintiff acquired the land of this case around December 10, 201, the project period was extended by December 27, 2003, and thereafter the said land readjustment project was extended several times and extended by November 22, 2007, when the Plaintiff sold the land of this case, and such extension of the project period was made through the authorization of modification of the project plan and the announcement procedure in accordance with the relevant statutes.

Examining these facts in light of the legal principles as seen earlier, the Plaintiff shall not be deemed to have used the land as non-business pursuant to Article 83-5 (1) 12 of the Enforcement Rule from December 28, 2003 to December 22, 2007, where the prohibition of or restriction on use has been extended due to the change in the land readjustment project plan after the Plaintiff acquired the land in this case.

Nevertheless, the court below determined otherwise that the disposition of this case is legitimate on the ground that the period of business has been extended due to the change of the land readjustment project plan after the Plaintiff acquired the land in this case, since such circumstance alone does not constitute the "land not used for the business due to justifiable reasons, such as the acquisition of the relevant land and the alteration of urban planning" as stipulated in subparagraph 12 of Article 83-5 of the Enforcement Rule. Thus, the period from December 28, 2003 to December 22, 2007 should be the period during which the Plaintiff used the land in this case as non-business use. In so determining, the court below erred by misapprehending the legal principles on the scope of "land not used for the business due to justifiable reasons, such as the alteration of urban planning after acquiring the land, etc." as stipulated in Article 83-5 (1) 12 of the Enforcement Rule, which affected the conclusion of the judgment. The ground of appeal pointing this out is with merit.

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 Park Poe-dae (Presiding Justice)