[1] In case of acquisition by succession of real estate with compensation, the time of acquisition, which becomes the starting date of calculating the grace period of the provision on non-deductible of interest paid to a corporation holding real estate for non-business

[2] Whether the existence of justifiable grounds constitutes an exception to a corporation's real estate for non-business use under Article 18 (3) of the former Enforcement Rule of the Corporate Tax Act (negative)

[1] Article 18 (3) 1 of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 1968 of March 12, 1994) provides that "real estate for which six months (two years in the case of a site for factory under Article 84-4 (1) of the Enforcement Decree of the Local Tax Act, and one year in the case of a site for other buildings or facilities) have passed after the relevant interest paid to a corporation is acquired as one of non-business real estate not subject to deductible expenses, and which is not directly used for the business of the corporation." The Corporate Tax Act does not separately provide for the time of acquisition, which is the initial date for calculating the grace period under the above provision, and does not apply the provisions concerning the time of acquisition under other tax laws such as the Income Tax Act, etc. However, if the purport of the provisions on the non-taxation of interest paid to a corporation holding non-business real estate is to prevent the deterioration of corporate financial structure due to an unreasonable corporate expansion, and to restrain the financial assets of a large enterprise to operate the real estate with sound productive succession.

[2] If a certain real estate falls under any of the subparagraphs of Article 18 (3) of the former Enforcement Rule of the Corporate Tax Act, it constitutes real estate for non-business use unless there is a ground for exception under paragraph (4), and the existence of so-called legitimate ground does not constitute an exception to non-business

[1] Article 18(3)1 of the former Enforcement Rule of the Corporate Tax Act (amended by the Ordinance of the Ministry of Finance and Economy No. 1968 of March 12, 1994); Article 53 of the former Enforcement Rule of the Income Tax Act / [2] Article 18-3(1)1 (see current Article 28(1)4(a)) of the former Corporate Tax Act (amended by the Ordinance of the Ministry of Finance and Economy of December 28, 1998); Article 43-2(1) and (3) (see current Article 49(1) of the former Enforcement Rule of the Corporate Tax Act (amended by the Presidential Decree No. 15970 of December 31, 198); Article 18(3) and (4) of the former Enforcement Rule of the Corporate Tax Act (amended by the Ordinance of the Ministry of Finance and Economy of March 12, 1994)

[1] Supreme Court Decision 91Nu11643 delivered on October 27, 1992 (Gong1992, 3328), Supreme Court Decision 94Nu3889 delivered on October 14, 1994 (Gong1994Ha, 3017) Supreme Court Decision 96Nu4862 delivered on February 28, 1997 (Gong1997Sang, 994) / [2] Supreme Court Decision 93Nu13469 delivered on November 26, 1993 (Gong194Sang, 222), Supreme Court Decision 96Nu3906 delivered on April 24, 1998 (Gong198Sang, 1534), Supreme Court Decision 9Nu1979 delivered on December 197, 199 (Gong194, 15934).

Construction Financial Cooperative (Attorney Jeon Jong-gu, Counsel for the plaintiff-appellant)

The Director of Gangnam District Office

Seoul High Court Decision 96Gu45148 delivered on December 4, 1997

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

We examine the grounds of appeal.

1. Regarding ground of appeal No. 1

Article 18(3)1 of the Enforcement Rule of the Corporate Tax Act (amended by the Ordinance of the Ministry of Finance and Economy No. 1968, Mar. 12, 1994; hereinafter the same) provides that "real estate for which six months (two years in the case of a site for factory under Article 84-4(1) of the Enforcement Decree of the Local Tax Act; one year in the case of a site for other buildings or facilities) have passed after the relevant interest paid to a corporation is acquired as one of non-business real estate not subject to deductible expenses and is not used directly for the business of the relevant corporation." The Corporate Tax Act does not separately provide for the time of acquisition, which is the initial date for calculating the grace period under the above provision, and does not apply the provisions concerning the time of acquisition under other tax laws such as the Income Tax Act, etc. However, if the purport of the provisions on the non-taxation of interest paid to a corporation holding non-business real estate is to prevent the deterioration of the financial structure of an enterprise due to corporate expansion, and to prevent the use of real estate by a large enterprise's financial asset.

The decision of the court below to the same purport is just, and there is no ground for appeal, since there is no error of law such as misunderstanding of legal principles.

2. As to the grounds of appeal Nos. 2 through 7

In short, this part is the opinion of the Supreme Court that the land of this case should be excluded from non-business real estate, since the plaintiff has justifiable grounds for not using the land of this case directly for the business of the plaintiff corporation until the grace period under the above Enforcement Rule expires. However, if a certain real estate falls under any subparagraph of Article 18 (3) of the Enforcement Rule of the Corporate Tax Act, it constitutes non-business real estate unless there are grounds for exception under paragraph (4), and the existence of so-called justifiable grounds does not constitute an exception to non-business real estate (see Supreme Court Decision 93Nu13469, Nov. 26, 1993).

Therefore, the court below's decision on the plaintiff's assertion that there is a justifiable reason after the grace period can be excluded from non-business real estate under Article 18 (3) 1 of the Enforcement Rule of the Corporate Tax Act. However, unlike the above Enforcement Rule, it seems that Article 18 (3) 1 of the amended Enforcement Rule of the Corporate Tax Act applies to the plaintiff's assertion that there is a justifiable reason after the grace period has expired (the original judgment seems to be inappropriate, unlike the above Enforcement Rule, that Article 18 (3) 1 of the amended Enforcement Rule of the Corporate Tax Act applies to the alteration of urban planning under the Urban Planning Act, etc. However, according to Article 2 of the above amended Enforcement Rule, the above amended provision applies from the business year beginning after January 1, 1994 to the first business year beginning after January 1, 1994. On the other hand, the defendant's period to consider the land as non-business real estate is up to December 27, 193, and the conclusion that the land in this case constitutes non-business real estate is justifiable.

3. Therefore, the appeal is dismissed and all costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Jong-chul (Presiding Justice)