Seoul Administrative Court-2018-Gu Group-13936 ( November 14, 2018)

Expenses incurred in replacing Dom or light such shall not be deemed capital expenditure.

Expenses incurred in replacing Dom or light, etc. shall not be deemed capital expenditure, and the mistake of capital gains as other income shall not be a legitimate reason for additional tax reduction or exemption.

Article 97 of the Income Tax Act (Calculation of Necessary Expenses for Transfer Income)

2018Nu74510, revocation of disposition of imposition, including capital gains tax

AA

BB

March 28, 2019

April 18, 2019

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance shall be revoked. On May 13, 2017, the imposition of capital gains tax of KRW 63,051,374 against the plaintiff shall be revoked.

1. Quotation of judgment of the first instance;

The reasoning of this court's decision is as follows, except for the second to third to sixth to third to sixth to third to half of the judgment of the court of first instance. Thus, this court's decision is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

Jin part

B. The assertion and determination that the replacement construction cost such as painting and painting should be included in the necessary expenses

1) The plaintiff's assertion

The Defendant, among the construction costs incurred by the Plaintiff and two others in relation to the instant building, KRW 36,190,90 and KRW 18,160,000 of the construction costs for replacing luminous lamps, etc., which were 376,29,635 won (the amount stated in the instant sales contract as the value of equipment, etc.) and KRW 18,160,000 of the construction cost for replacing luminous lamps, was not included in the necessary expenses. However, the instant real estate was severely damaged in August 2012, and thus, it was inevitable to implement large repair and remodelling construction to restore its function as a driving range. The instant construction cost was part of such construction cost, and thus, the instant construction cost constitutes an amount equivalent to the Plaintiff’s share in the construction cost under Article 97(5) of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 201; hereinafter the same shall apply) and Article 26(3)6(7) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26367.

2) Determination

A) Capital expenditures included in the necessary expenses to be deducted from the transfer value refers to the expenses that extend the lifespan of the transferred assets or increase the real value of the transferred assets. The beneficial expenditures not included in the necessary expenses refer to the expenses that were incurred in restoring the original state of the transferred assets or in maintaining the efficiency thereof (see, e.g., Supreme Court Decisions 88Nu520, Dec. 20, 198; 87Nu749, Dec. 8, 1987).

B) In light of the following circumstances, the instant construction cost cannot be deemed as capital expenditure that can be included in the necessary expenses. Therefore, this part of the Plaintiff’s assertion is without merit.

(1) In light of the content of the instant construction claimed by the Plaintiff, the construction cost of the instant case is close to the “profit-making expenditure” that the Plaintiff and two other parties recover from the original state of the instant real estate or contributed to maintain the efficiency of the instant business, rather than the “capital expenditure disbursed to increase the objective value of the instant real estate itself in terms of the concept. Moreover, in the case of the replacement of slot light, only a Pample (Evidence No. 4) was submitted, and the specific construction cost and method cannot be specified on the ground that the contract document, quotation, etc. are not submitted.

(2) As to the corporate tax law that combines capital expenditures and beneficial expenditures similar to those of the income tax law, Article 17 of the Enforcement Rule of the Corporate Tax Act lists those similar to those of subparagraphs 1 through 5 ( Subparagraph 6) such as seals of buildings or walls ( Subparagraph 1), substitution of damaged glass or walls ( Subparagraph 2), substitution of consumable components or labels ( Subparagraph 3), substitution of vehicle type locks ( Subparagraph 4), restoration of locks ( Subparagraph 5), insertion of locks (subparagraph 5), maintenance of other operational conditions, etc. As such, among the construction costs of this case, coloring costs are similar to those of subparagraphs 1 and 6, and replacement construction costs such as administration, etc. are similar to those of subparagraph 6.

(3) The Plaintiff asserts that, even though there is no substantial difference between the construction cost of the instant construction cost and the remainder of the construction cost incurred by the Plaintiff et al. in relation to the instant construction driving range, it is unreasonable that the Defendant did not include only the instant construction cost in the necessary expenses. The remainder of the construction cost claimed by the Plaintiff includes human typists, golf net construction cost, etc. As such, this part also appears to be likely to constitute a beneficial expenditure for the instant business, but if the instant construction cost also falls under a beneficial expenditure, it may be problematic that the Defendant included this part in the necessary expenses, but it cannot be deemed that measures not included in the instant construction cost, which correspond to a beneficial expenditure, are unlawful.

2. Conclusion

Since the judgment of the first instance is justifiable, the plaintiff's appeal is dismissed as it is groundless.