In a case where a ground for illegality alleged in the initial taxation disposition exists, and the initial taxation disposition is deemed unlawful, if the initial taxation disposition is deemed unlawful, whether the revocation of the increased taxation disposition can be claimed without a separate procedure for the previous trial as to the increased taxation disposition, even if the purport or reason for the claim was not modified in the previous trial procedure for the original taxation disposition (affirmative), and the standard for determining whether the period of filing a lawsuit seeking revocation of the increased taxation disposition is complied with (affirmative)

If the ground for illegality alleged in the initial taxation exists as well as the initial tax assessment, and the initial tax assessment is deemed unlawful, barring any special circumstance, it is reasonable to view that the taxpayer’s act, even though the initial tax assessment was conducted while the initial tax assessment was conducted, includes the intent to seek revocation of the initial tax assessment through the request for examination or adjudgment on the initial tax assessment. Therefore, even if the taxpayer did not change the purport or reason of the request in the initial tax assessment, it is possible to institute an administrative litigation seeking revocation of the initial tax assessment within 90 days from the date of receipt of notice of the initial request for examination or request for adjudgment without a need to undergo separate review on the initial tax assessment. Furthermore, even if the taxpayer filed an administrative litigation following the aforementioned process and stated that the taxpayer sought revocation of the initial tax assessment in the initial tax assessment, it should be deemed that the taxpayer’s intent to seek revocation of the initial tax assessment based on erroneous judgment is erroneous, and thus, it should be deemed that the taxpayer’s intent to seek revocation of the initial tax assessment in light of the developments leading up to the filing of the lawsuit or sought revocation of the original tax assessment.

Article 56 (3) of the former Framework Act on National Taxes (amended by Act No. 8830 of Dec. 31, 2007)

Plaintiff (Law Firm Tae, Attorneys Park Sung-sung et al., Counsel for the plaintiff-appellant)

The director of the tax office

Seoul High Court Decision 2010Nu44988 decided September 7, 2011

The part of the lower judgment regarding global income tax for the year 2002 is reversed, and that part of the case is remanded to the Seoul High Court. All appeals and remaining supplementary appeals are dismissed.

1. The grounds of appeal are examined.

For reasons indicated in its holding, the lower court recognized as necessary expenses for the calculation of the business income for each corresponding year the Plaintiff spent in 2003 KRW 215,959,894, and KRW 370,956,290 spent in 2004, out of the interest paid on the loan claimed by the Plaintiff.

In light of the records, the above judgment of the court below is just and acceptable, and contrary to the allegations in the grounds of appeal, there are no errors in violation of the law of logic and experience and free evaluation of evidence.

2. We examine the grounds of incidental appeal.

A. First, the part of the lower judgment on global income tax for the year 2002 (the part on which the lawsuit was dismissed) is determined ex officio.

1) The main text of Article 56(3) of the former Framework Act on National Taxes (amended by Act No. 8830, Dec. 31, 2007; hereinafter the same) provides that “ Notwithstanding the provisions of Article 20 of the Administrative Litigation Act, an administrative litigation against an unlawful disposition shall be filed within 90 days from the date the decision on the request for examination or adjudgment is notified.”

However, if a revised disposition is made while a legitimate pre-trial procedure disputing the initial taxation, the initial taxation disposition loses an independent value by absorbing the increased tax disposition. Therefore, barring any special circumstance, a taxpayer should file an administrative litigation seeking revocation of the increased tax disposition within 90 days from the date of receipt of notice of the decision.

However, in the event that the ground for illegality alleged in the initial taxation exists as well as the initial disposition of increase or decrease, and the initial disposition of increase or decrease is deemed unlawful, barring any special circumstance, it is reasonable to deem that the initial disposition of increase or decrease includes the intent to seek revocation of the initial disposition of tax increase or decrease, which absorbs the initial taxation through the request for review or adjudgment on the initial taxation, even though the initial disposition of increase or decrease was conducted during the previous trial procedure, barring any special circumstance.

Therefore, even if the taxpayer did not change the purpose or reason of the claim in the pre-trial procedure for the initial taxation disposition, it is possible to institute an administrative litigation seeking the cancellation of the increased disposition within 90 days from the date of receiving the notification of the decision on the initial request for examination or adjudgment filed without going through a separate pre-trial procedure for the increased disposition.

In addition, even if a taxpayer filed an administrative suit through the same process and stated the purport of the claim in which the taxpayer sought revocation of the initial taxation disposition, it shall be deemed to have mistakenly stated the purport of the claim as to the subject matter of the lawsuit according to a wrong judgment. In light of the background leading up to the lawsuit or the nature of the increased disposition, etc., the taxpayer’s genuine intent should be deemed to have sought revocation of the increased disposition itself, not the initial taxation that has already lost independent existence value by absorbing the increased disposition. Therefore, the taxpayer may correct the purport of the claim by seeking revocation of the increased disposition in the form of modifying the purport of the claim while the lawsuit is pending. In such a case, whether the period of filing a lawsuit should be determined at the time of the initial lawsuit that contains the intent of dissatisfaction to the increased

2) Review of the reasoning of the lower judgment and the evidence duly admitted reveals the following facts.

① The Plaintiff reported and paid global income tax of 2002 KRW 20,722,315. On August 1, 2006, the Defendant: (a) determined the amount of tax to be KRW 34,872,132 (===20,72,315 + 14,149,817) by revising the Plaintiff’s global income tax of 2002, deeming that the Plaintiff omitted part of the amount of income accrued from real estate sales (hereinafter “the first adjustment disposition”).

② On October 30, 2006, the Plaintiff asserted that “192,449,206 won paid for a loan used to acquire real estate offered for real estate sale business should be included in necessary expenses,” and filed a request for examination as to the first increase or decrease disposition with the Commissioner of the National Tax Service.

③ On May 1, 2007, when the trial on the above request for review was in progress, the Defendant disposed of the amount of non-deductible construction’s 2002 business year as bonus to the Plaintiff as well as the amount of non-deductible construction’s 26,480,805 won (=34,872,132 + 26,480,805 won). On the other hand, the Defendant determined the amount of tax as KRW 61,352,937 by correcting the Plaintiff’s global income tax by adding the amount to the Plaintiff’s global income amount (i.e., KRW 34,872,1

④ The Commissioner of the National Tax Service partially accepted the Plaintiff’s assertion on the first increase and correction disposition, and rendered a decision on December 18, 2007 to the effect that “51,03,422 paid in 202 as interest is deemed as necessary expenses and thus, the tax base and the amount of tax are corrected accordingly” (hereinafter “instant decision on review and determination”). Accordingly, on January 11, 2008, the Defendant made a decision on January 32, 202,179 (=61,352,937 Won-29,30,758) by reducing and correcting global income tax for 29,330,758 won attributed to the Plaintiff’s 2002.

⑤ 원고는 2008. 3. 18. 이 사건 소를 제기하면서 그 소장에 취소를 구하는 대상을 제1차 증액경정처분 세액인 14,149,817원으로 기재하는 한편 청구원인으로는 위 심사청구 당시 주장한 지급이자 192,449,206원 중 심사결정에서 인용되지 아니한 141,416,000원(≒192,449,206원-51,033,422원) 역시 필요경비에 추가되어야 한다고 주장하였다.

④ The Plaintiff asserted that, when the first instance court’s lawsuit is pending on November 16, 2009, global income tax amounting to KRW 32,022,179 (i.e., KRW 20,722,315, + KRW 14,149,817, + a second increase or decrease disposition of KRW 26,480,80,805- a second increase or decrease disposition of KRW 29,330,758), the Plaintiff sought revocation of the claim, and that, as seen earlier, if necessary expenses are added, the amount of the said final tax within the scope should be reduced by KRW 97,37,00,00 in total. As such, on June 222, 2010, the Plaintiff changed the scope of revocation to limit the remainder of KRW 11,29,864,232,207,2392,279).

3) In the instant case, the second increase disposition was made while the procedures for the examination on the first increase disposition were in progress. If necessary expenses were to be added as consistently asserted by the Plaintiff, the grounds for illegality are common in that the second increase disposition would immediately affect the propriety of the second increase disposition, regardless of whether or not the disposition of income itself is defective, in accordance with the provision on the deduction of the loss incurred from the calculation of the business income amount under Article 45(1) of the former Income Tax Act (amended by Act No. 8144, Dec. 30, 2006).

Examining these circumstances in light of the legal principles as seen earlier, insofar as there is no evidence to deem that the Plaintiff clearly expressed his/her intent to challenge only the first increase in the procedure for requesting the examination of the first increase in the first increase in the procedure, it is reasonable to deem that the Plaintiff’s act, in which the first increase in the first increase in the procedure was conducted, includes the Plaintiff’s intention to seek revocation of the second increase in the calculation.

In addition, the plaintiff filed the lawsuit in this case by stating the purport of the claim as seeking revocation of the first increase disposition, and expressed his/her intention to dispute the second increase disposition that is common to the grounds for illegality. Therefore, the plaintiff filed the lawsuit in this case on March 18, 2008, which is within 90 days from the date of receiving the notice of the review and decision of this case, but was increased by the second increase disposition on November 16, 2009, and on January 11, 2008, sought revocation of KRW 32,022,179, global income tax for the last 2002, which is reduced by the reduction and correction disposition on January 11, 2008, is nothing more than correcting the erroneous purport of the claim, and therefore, it does not mean that the plaintiff was changed from the first increase and correction disposition to the second increase and correction disposition that is subject to revocation. Accordingly, the lawsuit in this case was brought to comply with the intention to seek revocation of global income tax for the last 2002 years thereafter.

4) Nevertheless, the court below held that the lawsuit in this case constitutes a case where the lawsuit in this case was brought without going through a prior trial procedure on the second increase and correction disposition, and that the lawsuit in this case should be instituted within 90 days from the date of notification of the second increase and correction disposition pursuant to Article 20 of the Administrative Litigation Act, or within one year from the date of the second increase and correction disposition, since there was no "the date of notification of the decision on the request for examination, etc." as stipulated in the main sentence of Article 56 (3) of the former Framework Act on National Taxes. Thus, the court below erred by misapprehending the legal principles as to the period for filing the lawsuit in this case, which affected the conclusion of the judgment by misapprehending the legal principles as to the period for filing the lawsuit under Article 56 (3) of the former Framework Act on National Taxes, on May 1, 2007, while the second increase and correction disposition was increased by the second increase and correction disposition, and on January 16, 2009.

B. We examine the remaining grounds of incidental appeal.

Appellee may make an incidental appeal even after the right to appeal is extinguished, but the incidental appeal shall be filed within the period for submitting the appellate brief and the incidental appellate brief shall be filed (see Supreme Court Decision 2002Da52657, Dec. 10, 2002, etc.). The supplementary appellate brief submitted by the Plaintiff is not indicated in the grounds for the supplementary appellate brief, and it is evident in the record that the supplementary appellate brief was filed only on October 15, 201, which was 20 days from October 24, 2011 to November 15, 201, on which the notice of receipt of the records of the appeal was served on the appellant. Accordingly, the supplementary appeal by the Plaintiff shall be dismissed pursuant to Article 429 of the Civil Procedure Act

3. Conclusion

Therefore, the part of the judgment of the court below regarding the global income tax for the year 2002 (the part which rejected the lawsuit) shall be reversed, and that part of the case shall be remanded to the court below for a new trial and determination. The appeal and the remaining supplementary parts shall be dismissed. It is so decided as per Disposition by the assent of all participating

Justices Park Poe-dae (Presiding Justice)