[1] Whether the disposal loss of golf membership paid in lieu of the construction cost is necessary expenses in calculating the business income (negative)

[2] Criteria to determine whether losses incurred from asset transactions are included in other income

[3] The case holding that golf membership losses on disposal can be added to other business income, etc. after recognizing the business feasibility of golf membership transactions conducted in lieu of payment for the construction cost

[1] The necessary expenses for the calculation of business income, etc. under Article 31 (1) of the former Income Tax Act (amended by Act No. 4661 of Dec. 31, 1993) refers to the expenses directly related to the occurrence of income. Thus, even if a business income earner receives others than money and disposes of things other than money received after the income was realized and suffers losses, such losses do not constitute the necessary expenses corresponding to the initial gross income, as they do not directly related to the occurrence of income, and thus they do not constitute the necessary expenses corresponding to the initial gross income. Thus, even if losses were incurred due to the construction of the golf course and the disposal of the golf course's membership after the payment of the expenses was made in substitution for the construction cost, and then the golf course's membership was disposed of lower than the transferred value, such losses do not constitute the necessary expenses.

[2] Whether the loss incurred from the transaction of assets is included in other income, shall be determined according to social norms, considering the circumstances such as whether the transaction is subject to business income tax or subject to transfer income tax under the Income Tax Act, and whether the transaction is merely subject to transfer income tax, which is the transaction’s income from the transaction of assets, the purpose of which is profit, and whether the transaction is continuity and repetition to the extent that it can be seen as business activity in light of its size, frequency, mode, etc.

[3] The case holding that since it is reasonable to view that the transaction of golf membership in this golf membership has feasibility and it is reasonable to view that the transaction of golf membership is conducted in this case, since the golf membership did not make a separate business registration in the transaction of golf membership or did not have any human and material facilities for the transaction, if losses were incurred due to the transaction of golf membership in this golf membership, the total appraised amount of KRW 39,50,000 per sheet and KRW 1,540,500,000 per sheet, and the total appraised amount of KRW 21 of them are disposed of, and the remaining 18 of them are held in the remaining 18 cases, the appraised amount of the transacted golf membership is so high that it can be inferred the profit purpose, and there is a continuous and repeated nature in light of the pattern and frequency of the transaction in golf membership, and it is not different because the transaction in this golf membership did not have any separate business registration nor did it have any material and material facilities for the transaction in this case.

[1] Article 31 (1) (see current Article 27 (1)) of the former Income Tax Act (amended by Act No. 4661 of Dec. 31, 1993) / [2] Article 58 (1) and (4) (see current Article 45 (1) and Article 102) of the former Income Tax Act (amended by Act No. 4661 of Dec. 31, 1993) / [3] Article 58 (1) and (4) (see current Article 45 (1) and Article 102) of the former Income Tax Act (amended by Act No. 4661 of Dec. 31, 1993)

[2] [3] Supreme Court Decision 95Nu10969 delivered on February 23, 1996 (Gong1996Sang, 1150) Supreme Court Decision 96Nu8758 delivered on October 11, 1996 (Gong1996Ha, 3362) Supreme Court Decision 96Nu3913 delivered on December 6, 1996 (Gong197Sang, 247)

Plaintiff

Head of the Office of Government

Seoul High Court Decision 95Gu2930 delivered on August 29, 1996

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental grounds submitted after expiration of the period).

1. Regarding ground of appeal No. 1

Article 31 (1) of the former Income Tax Act (amended by Act No. 4661 of Dec. 31, 1993; hereinafter referred to as the "Act") provides that the amount to be included in necessary expenses in the calculation of business income, etc. shall be the total amount of expenses corresponding to the total amount of income in the corresponding year. Since necessary expenses referred to in the above provision refer to the expenses directly related to the occurrence of income, the necessary expenses referred to in the above provision refer to the expenses directly related to the occurrence of income, and even if the business income earner received money other than the money received after the income was realized and suffered losses by disposing of the money other than the money, such losses do not constitute the necessary expenses

In the same purport, the court below is just in holding that even if the plaintiff suffered losses due to the plaintiff's construction works for the golf course of this case and the disposal of the golf course's membership in lieu of the construction cost is lower than the transfer price, such losses are not the expenses incurred in obtaining revenues from the landscaping business, and it does not constitute necessary expenses, and there is no error in the misapprehension of legal principles as to necessary expenses, and there is no error in the misapprehension of legal principles as to the necessary expenses. Furthermore, since the plaintiff cannot be deemed as inventory assets due to the disposal of the golf course membership in lieu of the construction cost of the landscaping business, it cannot be deemed as necessary expenses as losses due to the disposal of the inventory assets.

2. Regarding ground of appeal No. 2

Article 58 (1) of the Act provides that losses from each type of income in calculating the income amount by income in the relevant year by the account book kept and recorded by a businessman shall be applied to the income amount by relevant income, and that the relevant global income tax base shall be aggregated in calculating the transfer income amount. Paragraph (4) of the same Article provides that income under Article 23 (1) 1 through 3 and 5 and losses from each type of income in calculating the income amount shall be calculated by classifying the income under Article 23 (1) 4 and that losses from the transaction of assets shall not be aggregated with other income amounts. Thus, whether losses from each transaction of assets are included in calculating the income amount shall be determined by considering the circumstances such as whether the transaction is subject to the transfer income tax under the Income Tax Act or not, and whether it is merely subject to the taxation of transfer income tax for the purpose of making profits, its size, frequency, mode, etc., to the extent that business activities can be seen as business activities, the determination shall be made in accordance with social norms (see, e.g., Supreme Court Decision 196Nu36.

According to the reasoning of the judgment below, the court below determined on January 1, 1992 that the plaintiff, who conducts landscaping business, was paid 1,787,00,000 won a total construction price for the landscaping work of a golf club calculated by Dong-dong Co., Ltd. and was paid 39,500,000 won a total of 1,540,500 won and 39 of the above golf club membership in lieu of paying 1,540,50,000 won a total of 1,50,000 won and 39,000 won a total of 39,50,000 won and 16,000 won a total of 1,78,000 won and 40,000 won a separate business income from the above golf club membership's business income for the purpose of selling and selling the above golf club membership due to the non-party Co., Ltd.'s repeated opening of the golf club on October 30, 1990.

However, even according to the decision of the court below, since the golf membership transferred by the plaintiff is 39 golf membership, the appraised value of which is 1,540,500,000 won per sheet, and the remaining 18 golf membership is held after disposing of 21 copies among them, it is so high that the appraised value of the transacted is enough to accelerate the profit purpose, and there is a continuous and repeated nature in light of the shape and frequency of the golf membership transaction in this case. Thus, it is reasonable to view that the golf membership in this case is business feasibility. Since the plaintiff did not make a separate business registration in the golf membership transaction, or did not have any human and material facilities for that transaction, if losses were incurred to the plaintiff due to the trade in this case, it should be aggregated with the business income of the plaintiff without any relation between the plaintiff and the actual investigation or decision on the actual investigation.

Nevertheless, on the grounds stated in its reasoning, the lower court deemed that the Plaintiff’s transaction of golf membership in this case did not recognize business feasibility, and determined that the loss incurred from the transaction does not aggregate with other business income, etc. of the Plaintiff. Therefore, the lower court erred by misapprehending the legal doctrine on recognition of business feasibility, which affected the conclusion of the judgment.

3. 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 Final Young-young (Presiding Justice)