(a) Whether the competent tax office should prove that the interest paid on the loan falls under the interest accrued from the appropriation of construction funds excluded from deductible expenses;

(b) Where it is unclear whether the loan incurred during the construction period for fixed assets has been appropriated for the construction funds, the tax office is required to deduct the interest from deductible expenses pursuant to Article 33(6) of the Enforcement Decree of the Corporate Tax Act.

A. The interest paid on a loan borrowed by a corporation from another person, in principle, may be included in deductible expenses in calculating the taxable income amount for each business year (Article 9(3) of the Corporate Tax Act and Article 12(2)7 of the Enforcement Decree of the same Act): Provided, That the interest paid on the loan appropriated for the construction fund of fixed business assets shall not be included in deductible expenses only in cases where there are several cases as prescribed by the Presidential Decree by delegation of the Corporate Tax Act (Article 16 subparag. 11 of the same Act). The interest on the loan appropriated for the construction fund here refers to only the interest paid on the loan used for the purchase, improvement (excluding cases where the parts of the machinery are improved or exchanged), production or construction of fixed business assets regardless of the title thereof, or other similar expenses (Article 33(1) of the Enforcement Decree of the Corporate Tax Act prior to the amendment by Presidential Decree No. 11282 of Dec. 29, 1983), and Article 33(1) of the Enforcement Decree of the Corporate Tax Act shall be proved that the loan was used for the construction of the office.

B. Where it is unclear whether a loan is used for the construction of fixed assets for business, the provisions of Article 33(6) of the Enforcement Decree of the Corporate Tax Act and Article 12(3) and (4) of the Enforcement Decree of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 1599 of Feb. 2, 1984) allow exceptions to the amount equivalent to the ratio of the amount of interest paid for the construction of fixed assets for business from the total amount of inventory assets for the same period as the amount of the interest paid for the loan incurred during the construction period of fixed assets for business (including credit account receivable, including bills issued for outstanding products and sales claims, and advance payment) equivalent to the amount of the interest paid for the construction of fixed assets for the same period, among the interest paid for the loan incurred during the construction period of fixed assets for business, shall be presumed to be used in proportion to the amount of the interest paid for the construction of fixed assets during the construction period to be included in deductible expenses, and thus, it shall be acknowledged that the amount of interest paid for the construction period should be included in deductible expenses.

A. (B) Article 16 subparag. 11 (A) of the Corporate Tax Act; Article 33(1) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 11282, Dec. 29, 1983); Article 33(6) of the Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 11282, Dec. 29, 1983); Article 12(3) and (4) of the Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy, Feb. 2, 1984)

Attorney Lee Jae-won, Counsel for the defendant-appellee-appellant, a foundation

Chuncheon Director of the Tax Office

Supreme Court Decision 87Nu710 Decided January 17, 1989

Seoul High Court Decision 89Gu2075 delivered on April 17, 1992

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

We examine the grounds of appeal.

(1) According to the reasoning of the lower judgment, the lower court determined that: (a) the Plaintiff’s interest on loans paid during each taxable period for the construction and relocation of the grave was no longer than 3,97,40 won in the year 1980; (b) the amount of interest paid for the construction and relocation of the grave was no longer than 6,182,00 won in the year 1981; and (c) the amount of interest paid for the construction and relocation of the grave was no more than 65,54,500 won in the calculation of the total amount of the interest paid for the construction and relocation of the grave; and (d) the amount corresponding to the ratio of the interest paid for the construction and relocation of the grave to the total area permitted for each business year to the total amount of the interest paid for the construction and relocation of the grave was no more than 3,576 won in the calculation of losses for the purpose of the construction and relocation of the grave; and (e) the remaining amount of the interest paid for the construction and relocation of the grave was no more than 1,0, imposed on the ground.

(2) According to the records, the court below's determination that the loan borrowed by the plaintiff corporation during each business year of this case constitutes a case where the cost of construction of fixed assets or capital expenditure of the loan constitutes a case where it is difficult to know how much the expenses can be seen as the plaintiff's inventory assets, and that there is no proof of the defendant as to the number of individual seedlings unsold in lots, the number of individual seedlings sold, and the calculation of drop number of fixed assets. Thus, there is no error of law such as omission of judgment, like the theory of lawsuit.

Nor can it be concluded that the Plaintiff corporation appropriated the borrowed money to the construction of fixed assets on the sole basis that there is no room for borrowing if the Plaintiff corporation invested considerable expenses in the basic facilities prior to the sale of the tombstones or did not invest in such facilities. In addition, if the facility cost pointing this out was included in the original cost of the Plaintiff corporation and should be included in the deductible expenses in proportion to the reputation of the grave base sold in lots, it is nothing more than the assertion that the beneficial expenditure for the purpose of sale in lots or the cost of the inventory assets should be included in the deductible expenses. However, it is clear that the interest on the borrowed money appropriated for such profitable expenditure is not only a ground for restricting the inclusion of expenses in deductible expenses due to the inclusion of the interest on the borrowed money used for such profitable expenditure in the calculation of expenses only in response to the usual number of houses sold in lots, but also does not constitute the interest on the construction of fixed assets and other funds

There is no reason to discuss this issue.

(3) In principle, the interest paid on loans borrowed from another person by a corporation may be included in deductible expenses in calculating the taxable income amount for each business year (Article 9(3) of the Corporate Tax Act and Article 12(2)7 of the Enforcement Decree thereof). However, it is limited to a number of cases prescribed by the Presidential Decree by delegation of the Corporate Tax Act not to include the interest paid on loans appropriated for the construction fund of fixed assets used for business purposes in deductible expenses (Article 16 subparag. 11 of the Corporate Tax Act). In this context, the interest paid on loans appropriated for the construction fund refers to only the interest paid on loans used for the purchase, improvement (excluding improvement or exchange of parts of machinery) production or construction of fixed assets used for business purposes or other similar expenses (Article 33(1) of the Enforcement Decree of the Corporate Tax Act prior to amendment by Presidential Decree No. 11282 of Dec. 29, 1987). Thus, it should be proved that the fixed assets used by the taxation office in question was not included in deductible expenses.

However, even in cases where it is unclear whether a loan is used for the construction of fixed assets for business, etc., the amount equivalent to the percentage of the amount of interest paid for the construction of fixed assets for the same period as the amount of fixed assets for business increased during the construction period, among the interest paid for the loan incurred during the construction period of fixed assets (including credit account receivables, including bills of exchange for outstanding products and sales, and advance payment), shall be equal to the percentage of the amount of interest paid for the construction of fixed assets for business from the total sum of the amount of the discount amount of the fixed assets for the same period as the amount of the interest paid for the construction period (Article 33(6) of the Enforcement Decree of the Corporate Tax Act and Article 12(3) and (4) of the Enforcement Decree of the Corporate Tax Act prior to the amendment by Ordinance of the Ministry of Finance and Economy No. 1599 of Feb. 2, 1984). However, the amount of interest paid for the construction period shall be presumed as the amount of interest paid for the construction of fixed assets during the construction period.

As determined by the court below, if the loan borrowed by the plaintiff corporation for each business year of this case is not clear as to whether it was used for the construction of fixed assets, the interest paid may be calculated according to the drop number ratio of inventory assets during the construction period of fixed assets in the pertinent business year, as prescribed by the above exceptional provisions, and the amount of the interest paid for the construction of fixed assets may be excluded from the calculation of losses. However, it is obvious that the defendant did not calculate the interest paid for the construction fund of this case or deny the inclusion of losses in the calculation of losses, and it is not clear that the defendant's assertion that the amount of the interest paid for the construction fund of this case is not the calculation of the amount of the interest paid for the

Ultimately, the taxation disposition that the defendant did not include part of the interest paid in accordance with the sales area for each business year in deductible expenses is without grounds under the Corporate Tax Act regarding the non-deductible of the interest paid, and as such, the tax amount imposed and notified by denying part of the interest paid in such a manner is within the scope of the legitimate tax amount, and the above disposition cannot be exempted from the revocation of the whole amount due to its illegality. The judgment of the court below that reached the above conclusion is just and there is no violation of the law, such as the theory of lawsuit, and it cannot be accepted merely because there is no other argument or independent argument.

(4) 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 Lee Don-hee (Presiding Justice)