(a) In cases where a building is demolished in order to use the land and a ground building together after its acquisition, and only the land is transferred in the state of a site, whether the acquisition value of the ground building and the cost of removal, etc., if it is evident that it was the purpose of only utilizing the land by removing the building from the beginning thereof, may be included in

(b) In cases where the existing building is removed and a new building is constructed on the ground, whether the acquisition value of the existing building or the cost of removal shall also be deducted as necessary expenses for capital gains and the grounds therefor;

A. In a case where the land and a building on the ground were acquired along with the land and a building on the ground, and only the land is transferred in the state of the site, such as the commencement of the removal of the building within a short time after the acquisition, if it is deemed evident that the acquisition of the land and a building was to be aimed at utilizing only the land by removing the building from the beginning to the original time, the acquisition value, removal cost, etc. of the removed building may be included in the necessary expenses of the transferred asset included in the acquisition value of the land. In a case where a site where an old ground building is located is acquired, the purchase price of the building on the ground and the cost of the suspension construction spent at the time of the acquisition of the site constitutes the capital expenditure under Article 94(

B. Even in cases where the existing building is removed and transferred without transferring it to a new building on the ground, if the above requirements are met, the acquisition value or removal cost of the existing building shall be deducted as necessary expenses for capital gains. The purpose of acquiring the land and the existing building on the ground is to acquire and use the land by the person who acquired the existing building on the ground, but the land should not be removed on the ground, and thus, the existing building is purchased along with the land on the premise of removal, and the land can be used for the purpose of removing the existing building. In such a case, it is reasonable to regard the purchase cost of the existing building and the removal cost as the acquisition value or capital expenditure according to Article 45 of the Income Tax Act.

Article 45 of the Income Tax Act, subparagraphs 2 and 3 of Article 94 of the Enforcement Decree of the same Act

[Plaintiff, Appellant] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Lee Do-young et al., Counsel for plaintiff-appellant)

[Judgment of the court below]

head of Dongjak-gu Tax Office

Seoul High Court Decision 92Gu130 delivered on April 14, 1992

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

We examine the grounds of appeal.

1. According to the reasoning of the judgment below, the court below

A. On April 15, 1989, the Plaintiff acquired the instant building site from Nonparty 1 on the lower part of the lower part of the instant building site and its ground (hereinafter “previous house”), but thereafter, newly constructed the previous house and built the brick 2-story house (hereinafter “newly-built house”), and then transferred it to Nonparty 2 on November 30, 198, which is within one year;

B. As to this, the Defendant is the purchase price at the time of the transfer, and the acquisition price is the amount calculated in proportion to the value of the building site and the previous house at the time of the acquisition, out of the purchase price at the time of the acquisition. Since the actual transaction price required for the acquisition of the newly-built house cannot be known, it is deemed as the amount calculated in proportion to the value of the building site and the newly-built house at the time of the transfer,

C. Furthermore, the amount corresponding to the previous house out of the purchase price of KRW 60,000,000, which the Plaintiff spent to acquire the previous house on the instant building site and its ground, cannot be included in the actual transaction price required for the acquisition of the instant building site and its ground, as long as the newly-built house was destroyed and constructed thereafter.

2. However, in a case where land and a building on the ground were acquired along with the land and a building on the ground, and only the land is transferred in the state of the site, such as the commencement of removal of the building within a short time after the acquisition, if it is obviously deemed that the acquisition of the land and a building was to be aimed at utilizing only the land by removing the building from the beginning to the beginning, the acquisition value and the cost of removal of the removed building may be included in the necessary expenses of the transferred asset included in the acquisition value of the land (see Supreme Court Decision 89Nu53, Jan. 25, 1990). In a case where a building on the ground is located in an worn-out site, the purchase price of the building on the ground and the cost of removal of the building on the ground shall be deducted as necessary expenses because it constitutes capital expenditure under Article 94(2) of the Enforcement Decree of the Income Tax Act (see Supreme Court Decision 82Nu386, Aug. 23, 198

3. In addition, in cases where a new building on the ground is constructed and transferred without removing the existing building and transferring it to the state of the site, if the above requirements are met, it would be right to deduct the acquisition value or removal cost of the existing building as necessary expenses for capital gains.

This is because, in this case, the purpose of the person who acquires the existing building on the land and the land is to acquire and use the land, and it should not be removed on the ground because there is the existing building on the land, and so it can be used for the purpose of removing the existing building, along with the land on the premise of removal. In this case, it is reasonable to regard the purchase cost or removal cost of the existing building as the improvement cost or capital expenditure according to Article 45 of the Income Tax Act.

4. Therefore, the court below did not consider that the plaintiff purchased the previous house on the land and its ground of this case and transferred the previous house within a short time, and did not consider it as a case meeting the above requirements, but it erred by misapprehending the legal principles as to the calculation of necessary expenses in the transfer income tax, thereby failing to exhaust all necessary deliberations. The grounds for appeal pointing this out are with merit.

Therefore, without further proceeding to decide on the remainder of the grounds of appeal, we reverse and remand the judgment below. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jong-soo (Presiding Justice)