(a) Criteria to determine whether income from new construction and sale of real estate is business income or capital gains;

(b) The case recognizing the feasibility of transfer transactions on the ground that construction business has been conducted in light of the mode, size, etc. of the house where the relevant land and a completed building are transferred, where a corporation has been established and the relevant land and a completed building have been transferred for tax saving or financing convenience while newly constructing a new house after having registered the business operator of a new house and obtaining a building permit;

A. Whether the income from the new construction and sale of real estate belongs to the business income under the Income Tax Act or is subject to the transfer income tax under the income tax Act shall be determined according to the ordinary social norms, considering whether the sale and purchase is for profit-making purposes, and the degree of continuity and repetition of business activities that can be seen as business activities in light of the scale, frequency, mode, etc.

B. The case holding that the Plaintiff cannot deny the feasibility of the transfer of the above corporation solely on the ground that the Plaintiff’s construction cost added to the construction cost in the reconstruction process was excessive and transferred the land and the buildings not completed on its ground, even if it transferred the land and the buildings not completed on its ground to the above corporation.

Article 20 (1) of the former Income Tax Act (amended by Act No. 4804 of Dec. 22, 1994)

A. Supreme Court Decision 92Nu14526 delivered on February 23, 1993 (Gong1993Sang, 1105) 93Nu22623 delivered on April 15, 1994 (Gong1994Sang, 1527) 93Nu17522 delivered on September 9, 1994 (Gong194Ha, 2662)

Plaintiff

Head of the Do Tax Office

Seoul High Court Decision 93Gu3618 delivered on September 14, 1994

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 acknowledged the following facts: (a) the Plaintiff registered a business operator of the new housing construction business on the land of this case, and obtained a construction permit of about 40% of multi-household houses on the land of this case, and obtained a request for removal and reconstruction from the design supervisor, along with the pointed out that the construction work violated the boundary violation and design details, was illegally constructed; (b) the design was changed to six households during the process of demolition and reconstruction; (c) accordingly, when the additional construction cost was excessive, and the construction cost was excessive, and the construction cost of new construction reached about 60%; (d) around July 191, 191, when the construction process of new construction, which was easy to obtain financing, established a stock company and transferred its business to the non-party company with the waiver of the initial business plan, which was trying to newly construct and sell multi-household houses on the land of this case, and thus, determined that the Plaintiff’s construction work commenced for the purpose of selling multi-household houses on the land of this case and its transfer as part of the construction business.

2. Whether or not income from new construction and sale of real estate belongs to business income under the Income Tax Act or is subject to taxation of capital gains tax shall be determined according to ordinary social norms, considering whether the sale and purchase is for profit, and whether the sale and purchase is made with continuity and repetition to the extent that it can be seen as business activity in light of the size, recovery, mode, etc. of the sale and purchase (see, e.g., Supreme Court Decisions 93Nu2623, Apr. 15, 1994; 93Nu17522, Sept. 9, 1994).

However, according to the records in this case, the plaintiff was operating a new house construction business after obtaining a building permit, and was operating a business after establishing and operating a corporation for tax saving or convenience in financing, etc., and transferred a business to a corporation actually established by the plaintiff (the plaintiff was the representative director at the time of its establishment, and the plaintiff's wife becomes the representative director thereafter). Thus, it shall be deemed that the plaintiff was operating a construction business at the time of considering such circumstances and the type, size, etc. of multi-household house in which the plaintiff was under construction, and even if the plaintiff transferred the land in this case and the buildings under completion of its ground due to the circumstances such as the decision of the court below, such circumstance alone cannot be denied the business feasibility for the transfer of the above corporation.

Nevertheless, the court below determined that the Plaintiff’s transfer of land, etc. does not constitute a construction business on the grounds of its decision, and thus, the court below erred by misapprehending the legal principles on the feasibility of construction business, and it is obvious that such illegality has affected the conclusion of the judgment.

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

Justices Kim Jong-soo (Presiding Justice)