[1] The meaning of succession to business under Article 185 (1) of the former Income Tax Act, which provides for special cases concerning the keeping of books and bookkeeping books

[2] In a case where a portion omitted in sales is discovered through a field investigation, the burden of proof for the existence of necessary expenses corresponding to the omitted portion (=taxpayer), and whether income can be determined by the method of estimated investigation for the deduction of the necessary expenses (negative)

[3] Requirements for recognition as bad debt

[1] The person who succeeds to the business under Article 185 (1) of the former Income Tax Act (amended by Act No. 4520 of Dec. 8, 1992) that provides for the business operator's succession to the book keeping and the book keeping refers to the person who comprehensively succeeds to the business, and the person who comprehensively succeeds to the business refers to the person who succeeds to the legal status of the same level as the transferor by taking over the entire business facilities from the transferor as well as all personal and material rights and obligations such as the business rights and obligations related to the business.

[2] In a case where a tax assessment is conducted based on the on-site investigation decision, the taxpayer should assert and prove that there is necessary expenses corresponding to the omission of sales, and when the amount of income can be determined by the method of the on-site investigation, it cannot be determined by the method of the on-site investigation. If the tax authority clarified the omission of revenue during the taxable period by the on-site investigation and recognized the necessary expenses corresponding thereto by the on-site investigation, it cannot be deemed impossible to make a decision on the on-site investigation, and thus, it cannot be determined by the method of the on-site investigation. If necessary expenses not recognized by the tax authority exist, the taxpayer should assert and prove it, and the income cannot be determined by the method of the on-site investigation

[3] Article 60 (1) 13 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 13802, Dec. 31, 1992) provides bad debts as one of necessary expenses corresponding to the total income amount of each year of business income. In this context, necessary expenses refers to the expenses directly related to the income accrued from the income. Therefore, it requires that a claim to be included in one bad debt, which is necessary expenses, is directly related to the income accrued from the income. Meanwhile, in light of the purport of Article 60 (3) of the Enforcement Decree of the above Act, the bad debt included in necessary expenses, in calculating the income amount, is limited to the claim that is objectively confirmed that the fact that it is impossible to recover the bad debt included in the necessary expenses in the year of the income amount, and even if the debtor discontinued his business and escaped,

[1] Article 185 (1) of the former Income Tax Act (amended by Act No. 4520 of Dec. 8, 1992) / [2] Article 31 (see current Article 27), Article 120 (1) (see current Article 80 (3)), Article 169 (1) and (2) (see current Article 143 (1) and (2)) of the former Income Tax Act (amended by Presidential Decree No. 13802 of Dec. 31, 1992) / [3] Article 31 (see current Article 27 of the Income Tax Act) of the former Income Tax Act (amended by Act No. 4520 of Dec. 8, 1992); Article 169 (1) and (2) (see current Article 143 (1) and (2)) of the former Income Tax Act (amended by Act No. 4520 of Dec. 8, 1992); Article 15 (1) of the former Income Tax Act (see current Article 27 (1) of the Income Tax Act)

[1] Supreme Court Decision 81Nu134 delivered on December 13, 1983 (Gong1984, 180), Supreme Court Decision 82Nu311 delivered on April 24, 1984 (Gong1984, 906) Supreme Court Decision 90Nu1892 delivered on August 28, 1990 (Gong1990, 2042) / [2] Supreme Court Decision 86Nu217 delivered on November 25, 1986 (Gong1987, 1194) 8Nu1179 delivered on July 11, 198 (Gong1989, 1257) (Gong1949, 1979, 1947) / [2] Supreme Court Decision 90Nu19739 delivered on December 11, 1997 (Gong1949, 1947)

[Defendant-Appellee] U.S. (Attorney Hy Chang-soo et al., Counsel for defendant-appellee)

The Director of Gangnam District Office

Seoul High Court Decision 95Gu25741 delivered on August 22, 1996

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

We examine the grounds of appeal.

1. On the first ground for appeal

A person who succeeds to a business under Article 185 (1) of the former Income Tax Act (amended by Act No. 4520 of Dec. 8, 1992, hereinafter referred to as the "Act") that provides for the business owner's keeping of books and the succession to the books of account shall mean a person who comprehensively succeeds to the business. Here, a person who comprehensively succeeds to the business refers to a person who comprehensively succeeds to the legal status of the same person as the transferor by taking over the entire business facilities from the transferor as well as all personal and material rights and obligations, such as business rights and claims and obligations related to such business (see, e.g., Supreme Court Decision 90Nu1892, Aug. 28, 199).

According to the records, when the plaintiff was unable to receive the payment after lending money to the non-party 1 who operated the movie theater of this case, the plaintiff acquired all the business facilities in the form of sub-lease of the movie theater of this case from the Dong on September 28, 1990 and operated from October 1 of the same year after taking over all the business facilities. If the facts are the same, the plaintiff shall be deemed to have taken over the business of the movie theater of this case comprehensively. Thus, the plaintiff shall be deemed to be a person who succeeded to the business under Article 185 (1) of the Act.

In the same purport, the lower court is justifiable to have determined that the Plaintiff’s succession to Nonparty 1’s business who is subject to double-entry bookkeeping constitutes a person subject to double-entry bookkeeping, and thus, the Plaintiff cannot be subject to double-entry bookkeeping. In so doing, there is no error in the misapprehension of legal principles or insufficient deliberation as pointed out in the grounds of appeal. Moreover, the Plaintiff’s transfer of the instant film theater’s business after acquiring the instant film theater’s business

2. On the second ground for appeal

In the event that a tax assessment is conducted by the on-site investigation decision on the omitted sales, the taxpayer should assert and prove the necessary expenses corresponding to the omitted sales amount, and when the amount of income can be determined by the on-site investigation method, it cannot be determined by the estimation investigation method (see, e.g., Supreme Court Decision 90Nu10179, Jul. 12, 191).

As legally determined by the court below, if the defendant clarified the plaintiff's omission of the amount of income in the year 1991 and year 1992 by the field investigation and recognized the necessary expenses corresponding thereto by the field investigation, it cannot be deemed impossible to make a decision on the field investigation, and if there is any necessary expenses not recognized by the defendant, it cannot be determined by the estimation investigation. If there is any necessary expenses not acknowledged by the defendant, it shall be asserted and proved by the taxpayer, and the income cannot be determined by the estimation investigation method to deduct the necessary expenses.

The decision of the court below to the same purport is just, and there is no error of law in the misapprehension of legal principles as pointed out in the grounds of appeal, and there is no ground for estimation merely because the ratio of the revenue originally reported by the plaintiff is only 56.8% or 67.1%, or the plaintiff's income rate recognized by the defendant is higher than that of other film enterprisers who are the same type of

The Supreme Court Decision 86Nu24 Decided September 9, 1986 cited in the ground of appeal is inappropriate to be invoked in the instant case, since the case differs from the instant case. There is no reason to challenge the issue.

3. On the third ground for appeal

Article 60 (1) 13 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 13802, Dec. 31, 1992; hereinafter the "Enforcement Decree") provides that bad debts shall be one of necessary expenses corresponding to the total income amount of each year of business income. In this context, necessary expenses refers to expenses directly related to income accrued. Therefore, one of the necessary expenses's bad debts shall also be directly related to income accrued. On the other hand, Article 60 (3) of the Enforcement Decree provides that bad debts shall be limited to cases falling under any of the following subparagraphs. Article 60 (3) of the Enforcement Decree provides that where bad debts cannot be recovered due to the debtor's bankruptcy, compulsory execution, execution of a sentence of compulsory execution, or discontinuation of the business. Article 60 (2) of the Enforcement Decree provides that when debts cannot be recovered due to the debtor's death, disappearance, missing, etc., the bad debts included in necessary expenses in calculating the income amount shall be recovered in the year in which it is objectively finalized in the year, and shall not be finalized.

According to the records, when the plaintiff was unable to receive the above monetary amount from the non-party 1 who operated the movie theater of this case on September 28, 1990, the plaintiff acquired the movie theater of this case in the form of a sub-lease of KRW 600,00,000, monthly rent of KRW 10,000, and operated from October 1 of the same year under the agreement to return the right to operation even at any time when he was paid the above monetary amount from the Dong, and the non-party 1 got out of the loan of this case after the transfer of the movie theater's business. Since the non-party 1 got out of bankruptcy after the transfer of the movie theater's business, the lease contract of this case was renewed in the name of the non-party 2 who was a joint tenant of the non-party 1 and the non-party 1 was notified of the termination of the lease contract of this case as of July 31, 192, the plaintiff concluded the lease deposit of this case to the non-party 250,0000,000.

On the other hand, as long as the Plaintiff’s claim against Nonparty 1 is deemed not subject to inclusion of bad debts in bad debts, it does not affect the conclusion of whether the claim is confirmed as impossible to recover. However, just because the Plaintiff asserts, it cannot be deemed that the Plaintiff’s claim against Nonparty 1 was confirmed as impossible to recover, and it is not recognized by the evidence cited by the Plaintiff

In the same purport, the court below is just in holding that the above claim against the non-party 1 does not constitute bad debts, and there is no error in the misapprehension of legal principles or in the violation of the rules of evidence as pointed out in the grounds of appeal.

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 Yong-hun (Presiding Justice)