Plaintiff (Law Firm Man New, Attorneys Yoon Young-young et al., Counsel for plaintiff-appellant)

The director of the North Incheon National Tax Office

Incheon District Court Decision 2011Guhap949 Decided May 19, 2011

September 22, 2011

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The Defendant’s disposition of imposition of KRW 91,957,720 for the Plaintiff on December 10, 2008 shall be revoked.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

A. On December 10, 2001, the Plaintiff acquired and owned 496 square meters of land site in Seo-gu, Incheon (hereinafter referred to as “instant land”) in Seo-gu, Incheon (hereinafter referred to as “2 omitted), and transferred it to the Nonparty on November 22, 2007.

B. On December 31, 2007, the Plaintiff considered the instant land as land for business and applied 36% of the general accumulated rate to the land for business, and reported and paid KRW 59,780,178 for the transfer income tax for the year 2007.

C. On December 10, 2008, the Defendant deemed that the instant land constitutes land for non-business under Article 104-3(1) of the former Income Tax Act (amended by Act No. 9270, Dec. 26, 2008; hereinafter the same), and thus, imposed capital gains tax on the Plaintiff for the year 2007 by applying 60% of the heavy tax rate.

D. The Plaintiff dissatisfied with the instant disposition and filed a request for examination with the Commissioner of the National Tax Service on March 2, 2009, but the Commissioner of the National Tax Service dismissed the said request for examination on July 15, 2009.

【Non-contentious facts, Gap’s evidence 1, 3, Eul’s evidence 1, Eul’s evidence 2-1, 2, Eul’s evidence 3 and 4, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Since the instant land does not constitute non-business land for the following reasons, the instant disposition based on a different premise is unlawful.

1) The instant land is a land where an urban development project is implemented by the replotting method, and construction of the water supply system has been completed on November 2004 and around that time. According to Article 83-5 (1) 8 of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 74 of Apr. 14, 2009; hereinafter the same shall apply), since it does not constitute non-business land for two years from the time when construction is possible, since it does not constitute two years from Nov. 22, 2004 to Nov. 21, 207, the period for which it does not fall under non-business land during the period from Nov. 22, 2004 to Nov. 21, 2007, the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 20618 of Feb. 22, 2008; hereinafter the same shall apply) shall not apply.

2) Article 104-3 (2) of the former Income Tax Act provides that "other inevitable reasons prescribed by the Presidential Decree" shall not be deemed limited to the reasons that occurred after the acquisition of the land in light of the form and purport of the law. In addition, the period during which justifiable reasons, such as the alteration of urban planning, etc. under Article 168-14 (1) 3 of the former Enforcement Decree of the Income Tax Act and Article 83-5 (1) 12 of the former Enforcement Rule of the Income Tax Act, occur shall not be deemed land for non-business. After the Plaintiff acquired the land in this case, the Mayor of Incheon Metropolitan City publicly announced on December 27, 2003 the business period of a land readjustment and rearrangement project in the light of the land in this case including the land in this case as of December 27, 2004, but publicly announced the modification of the above business plan to extend the completion period of the project in this case on several occasions from November 204, 204. Thus, this constitutes "change of urban planning" under Article 83-5 (12) of the Enforcement Rule of the Income Tax.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination on the assertion 1

There is no evidence to acknowledge that the construction of water supply system was completed on Nov. 1, 2004 with respect to the land readjustment project of Incheon Western District including the land in this case (hereinafter the "land readjustment project in this case"), and that construction was possible from that time. Rather, according to the fact inquiry conducted by the court of first instance on the head of Seo-gu Incheon Metropolitan City, the date of completion of the infrastructure of the land readjustment project in this case can be recognized as of Apr. 3, 2007. Thus, the plaintiff's assertion in this part is without merit without the need for further review.

D. Judgment on the assertion ②

1) Facts of recognition

A) On December 28, 1994, the Mayor of Incheon Metropolitan City (the head of Incheon Metropolitan City at that time) authorized and publicly announced the execution of the land readjustment project of this case, the following contents: “The enforcement location: KRW 1,000,000,000,000,000,000,000 for the land readjustment project: KRW 343,70 square meters from December 28, 1994,00,000,000 in the Seo-gu Incheon Metropolitan City (hereinafter referred to as “1 omitted) and KRW 1,00,00

B) After that, the head of Incheon Metropolitan City announced on December 5, 1997 the Incheon Metropolitan City public announcement 1997-374, which changed the project period of the land readjustment project of this case to December 27, 200, and the modification and public announcement of the project plan was made on August 23, 2000, which extended the project period to December 27, 2003 again as the public announcement No. 2000-348 of Incheon Metropolitan City announced on August 23, 2000, and thereafter approved the land readjustment plan of this case as the public announcement of Incheon Metropolitan City on September 18, 2001.

C) The Plaintiff acquired the instant land by auction on December 10, 2001.

D) The Mayor of Incheon Metropolitan City changed the project period of the land readjustment project of this case by December 27, 2004, as Incheon Metropolitan City Notice No. 2003-153 of April 19, 2003, by December 10, 2004, by December 27, 2006, Incheon Metropolitan City Notice No. 2004-850 of December 10, 2004, by December 27, 2006, by December 27, 2006, Incheon Metropolitan City Notice No. 2006-1237 of December 27, 2007, by October 10, 2007, Incheon Metropolitan City Notice No. 2007-1033 of October 10, 207, by December 22, 2008, respectively, by the announcement No. 2008-13739, Dec. 22, 2008.

E) On November 22, 2007, the Plaintiff acquired the instant land and completed the registration of transfer of ownership on November 22, 2007, when about five years and eleven months elapsed since the date of acquiring the instant land, but the Plaintiff and the Plaintiff’s household members did not own another house from the time of acquiring the instant land until the time of transfer.

【Ground of recognition】 The fact that there is no dispute, the Mayor of the court of first instance, the Mayor of the Incheon Metropolitan City, and the head of Seo-gu Incheon Metropolitan City, the purport

2) Determination

A) Relevant legal principles

With respect to the interpretation of tax-related laws, it is interpreted as a legal interpretation in the absence of special circumstances, and it is not permitted to expand or analogically interpret it without any reasonable reason, and in particular, it is also consistent with the principle of fairness to strictly interpret it as a clearly preferential provision among the requirements for reduction or exemption (see Supreme Court Decision 2007Du9884, Oct. 26, 2007).

B) The regulation system of land for non-business use under the Income Tax Act

According to Article 104-3 (1) 4 (c) of the former Income Tax Act, Articles 168-6 and 168-11 (1) 13 of the former Enforcement Decree of the Income Tax Act, and Article 83-4 (16) of the former Enforcement Rule of the Income Tax Act, where the ownership period of land is not less than five years, the land shall be deemed land for non-business purposes if the ownership period exceeds two years from the transfer date, and the period exceeding one year from the three years immediately before the transfer date, and the period exceeding 20/100 of the land is not provided for business. Meanwhile, Article 104-3 (2) of the former Income Tax Act provides that where the land falls under any of the subparagraphs of paragraph (1) of the former Enforcement Decree of the Income Tax Act after its acquisition, the land shall not be deemed land for non-business purposes, and it shall be deemed that the period falling under subparagraph 1 or 3 of Article 168-14 (1) of the former Enforcement Rule of the Income Tax Act is limited by Ordinance of the Ministry of the Ministry of the Ministry of Strategy and Finance.

C) Whether the instant land constitutes “the prohibition or restriction of use due to the statutory provisions after acquiring the land” under Article 104-3(2) of the former Income Tax Act

(1) The purpose of Article 104-3(2) of the former Income Tax Act, Article 168-14(1)1 and 3 of the former Enforcement Decree of the Income Tax Act, and Article 83-5(1)12 of the former Enforcement Rule of the Income Tax Act provides that if a land is not used for business due to justifiable grounds, such as the alteration of urban planning, etc., after acquiring the land, it shall be deemed that the land does not fall under the non-business land for a given period. This provision aims to use the land for business because there is no restriction on the use of the land at the time of its acquisition, but it is not possible to use the land for business due to changes in circumstances due to reasons not attributable to the owner after the acquisition of the land.

Article 104-3 (2) of the former Enforcement Decree of the Income Tax Act, Article 168-14 (1) 1 and 3 of the former Enforcement Decree of the Income Tax Act, and Article 83-5 (1) 12 of the former Enforcement Decree of the Income Tax Act provide that "the prohibition of or restriction on the use of the land after the acquisition of the land," and "land not used for the business due to justifiable reasons, such as the alteration of urban planning after the acquisition of the land," shall clearly state that the grounds for restrictions on the use of the land, such as the alteration of urban planning, should occur after the acquisition of the land (Article 83-5 (1) 1, 2, 7, and 12 of the former Enforcement Rule of the Income Tax Act do not have a separate provision on "after the acquisition of the land," and it cannot be deemed that the land had been acquired for non-business purposes, unless there is any special reason for the Plaintiff's interpretation or exclusion from the taxation without the taxation without the law, and thus, it cannot be deemed that there is no justifiable reason for the Plaintiff to deem it to be any restriction on the land.

Therefore, if the land of this case falls under the land stipulated in Article 104-3 (2) of the former Income Tax Act, Article 168-14 (1) 1 and 3 of the former Enforcement Decree of the Income Tax Act, and Article 83-5 (12) of the former Enforcement Rule of the Income Tax Act, the land of this case should not be used for the business due to justifiable reasons, such as prohibition of or restriction on the use of the land of this case after the plaintiff's acquisition, or alteration of urban planning. According to the above facts of recognition, since the land of this case was designated as the land rearrangement zone since December 28, 1994 and the land of this case was already executed before December 10, 201, the land of this case was already purchased with the recognition that the land of this case was restricted, and therefore, it cannot be deemed that there was a new change in the land use plan of this case due to the ground that there was a restriction on land use by the land rearrangement project, and there was no change in the new land use plan of this case.

On a different premise, the Defendant’s assertion on this part is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is unfair with different conclusions, so the judgment of the court of first instance is revoked and the plaintiff's claim is dismissed. It is so decided as per Disposition.

[Attachment Form 5]

On the same day as judge Lee Jong-dae (Presiding Judge)