The meaning of "amount required to acquire stocks of the relevant corporation" in each subparagraph of Article 26 (1) of the former Income Tax Act, and whether the face value of free-of-charge allocated by capitalizing the asset revaluation reserve is included therein (negative)

Article 26 (1) of the former Income Tax Act (amended by Act No. 4281 of Dec. 31, 1990) provides that "the amount required to acquire the stocks of the corporation concerned" shall be deemed to mean the amount actually paid to acquire the stocks of the corporation concerned, and it shall be deemed that the free share capital allocated according to the capital transfer of revaluation reserve is received without compensation. The acquisition value is actually included in the acquisition value of the stocks previously held, so the above free share value shall not be deemed to be "the amount required to acquire the stocks of the corporation concerned".

Article 26 (1) of the former Income Tax Act (amended by Act No. 4281 of Dec. 31, 1990)

Supreme Court Decision 90Nu2154 delivered on February 28, 1992 (Gong1992, 1202) 91Nu9916 delivered on March 13, 1992

Chang Industrial Company

Director of the District Office

Seoul High Court Decision 90Gu21546 delivered on September 4, 1991

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 determined that the plaintiff corporation delivered 1,100,000 shares (50 won per share) of the plaintiff corporation to the non-party (the non-party) who was the shareholder of the merged company as to 1,100,000 shares (50 won per share) of the issued company of the merged company on March 30, 1985 when it merged the above 30 of the merged company's shares with the non-party corporation's liability to acquire the above 40,000 shares (the above non-party's shares) on the premise that the above 660,000,000 shares (the above non-party's shares were 60,000,000 won for 60,000,000 won for 1,20,0000,000 won for 60,000,000 won for 60,000,000 won for capital transfer without compensation of the shares (the above 201, 4,016,06.).

However, the phrase "amount required for acquiring stocks of the corporation concerned" in each subparagraph of Article 26 (1) of the former Income Tax Act shall be deemed to mean the amount actually paid for acquiring stocks of the corporation concerned, and the acquisition value is actually included in the acquisition value of stocks of the corporation concerned, and it shall not be deemed to be "amount required for acquiring stocks of the corporation concerned" since the acquisition value is actually included in the acquisition value of stocks previously held. (See Supreme Court Decision 90Nu2154 delivered on February 28, 1992)

Nevertheless, the court below erred in the misapprehension of legal principles as to constructive dividend at the time of corporate merger, since it is reasonable to view that the amount required for acquiring the pertinent shares is the value of the total shares including the above gratuitous shares. The revocation of the tax disposition in this case is erroneous in the misapprehension of legal principles as to the constructive dividend at the time of corporate merger, and there

3. Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Sang-won (Presiding Justice)