The meaning and standard for determining whether the “rewards” as one of other income under Article 21(1)17 of the former Income Tax Act falls under such “rewards”

Article 21 (1) 17 of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006 and Article 21 (1) 17 of the former Income Tax Act (amended by Act No. 8825 of Dec. 31, 2007) refers to the money and valuables provided as other income in relation to administrative affairs or provision of service. Whether the money and valuables fall under this case shall be determined by comprehensively taking into account the motive and purpose of receiving the money and the relation with the other party, amount, etc., and if it appears that the money and valuables are paid as the meaning of the case for conducting external affairs, if the money and valuables include the nature that can not be deemed as the actual honorarium, the entire money and valuables shall not be deemed as the “compensation.”

Article 21 (1) 7, 17, and (2) of the former Income Tax Act (Amended by Act No. 8144, Dec. 30, 2006); Article 21 (1) 7, 17, and (2) of the former Income Tax Act (Amended by Act No. 8825, Dec. 31, 2007); Article 87 subparagraph 4 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 19890, Feb. 28, 2007); Article 87 subparagraph 4 of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 20618, Feb. 22, 2008); Article 87 subparagraph 4 of the former Enforcement Decree of the Income Tax Act [see current Article 87 subparagraph 1 (b) of the former Enforcement Decree of the Income Tax Act]

Supreme Court Decision 2010Du27288 Decided September 13, 2013 (Gong2013Ha, 1841)

Plaintiff (Law Firm Han & Yang LLC, Attorneys Lee Young-young et al., Counsel for the plaintiff-appellant)

Gangwon-gu Director of the District Office

Seoul High Court Decision 2012Nu22050 decided January 17, 2013

The judgment below is reversed and the case is remanded to Seoul High Court.

1. We examine the grounds of appeal on other incomes accrued in 2006 and 2007.

(1) Article 21(1) of the former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006 and by Act No. 8825 of Dec. 31, 2007; hereinafter the same) provides that “mining rights, fishing rights, industrial property rights, and industrial information, industrial secrets, trademark rights, business rights, rights incidental to permission to collect earth, sand, and rock, rights incidental to permission to develop and use underground water, and money and valuables received in return for the transfer or lease of, and rights to develop and use underground water (No. 7) and other similar assets or rights, respectively.

Meanwhile, Article 21(2) of the former Income Tax Act provides that “The amount of other income shall be the amount obtained by deducting the necessary expenses required therefor from the total amount of income in the current year.” However, Article 87 Subparag. 4 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890 of Feb. 28, 2007 and the amended by Presidential Decree No. 20618 of Feb. 22, 2008) provides that “other income under Article 21(1)7 of the Act whose necessary expenses are not confirmed or less than 80/100 of the amount of income” provides that “The amount equivalent to 80/100 of the amount received by the resident shall be necessary expenses.”

(2) The lower court: (a) around 1994, the Plaintiff engaged in the same business as to the manufacturing and sale of the Nonparty and the 2nd 3rd 6th Y2 (HK) in Hong Kong; (b) established a domestic corporation ○○○○○○ (hereinafter “Nonindicted Kong corporation”); and (c) operated a business in the Republic of Korea; (b) while engaging in liquidation with the Nonparty on February 27, 2006, the Plaintiff was paid KRW 1.5 billion in consideration of liquidation; (c) the Plaintiff received the original and sample of the processed products from relevant customers, such as ○○○○○ U.S. 2000 (○○○○○○○○○○); (d) the Nonparty received a copy of the original and sample from the rest of the customers; and (e) the Nonparty was entitled to demand the Plaintiff to receive KRW 206 50 million in consideration of the agreement pertaining to the remaining amount of KRW 90,500,000 in total income; and (e) the amount of KRW 2979698.

Furthermore, the court below rejected the Plaintiff’s overall disposition on the ground that the Plaintiff’s design work performance during the business period was distributed to the Nonparty in accordance with the liquidation of the relationship between the Plaintiff and the Nonparty, and that the Plaintiff’s work performance was transferred or granted to the Nonparty in accordance with the Plaintiff’s work performance, and that the Plaintiff’s work performance did not constitute “the Plaintiff’s work performance of the Plaintiff’s work performance” under the premise that the Plaintiff’s work performance was owned by exclusive rights to the design and pattern, and that there was no registered utility model right, patent right, design right, etc. with respect to the design and pattern developed by himself, and that the agreement in this case includes the content that the Plaintiff’s customer management and allocation, separation of factories, facilities and employees, and that the Plaintiff’s work performance is not legitimate in light of the fact that the Plaintiff’s work performance of the Plaintiff’s work performance was transferred or granted to the Nonparty in accordance with the agreement on the Plaintiff’s work performance and the Plaintiff’s other than the Plaintiff’s work performance, and that the amount of the Plaintiff’s work performance was not paid to the Plaintiff under the agreement on the Plaintiff’s work performance.

(3) However, it is difficult to accept such determination by the lower court for the following reasons.

Article 21 (1) 17 of the former Income Tax Act refers to money and valuables provided as a means of a case in connection with administrative affairs or provision of services, etc., and whether it is applicable shall be determined by comprehensively taking into account the motive and purpose of receiving the relevant money and valuables, relationship with the other party, amount, etc. (see, e.g., Supreme Court Decision 2010Du27288, Sept. 13, 2013). Even if it appears that the money and valuables are paid as a case in relation to external business affairs, if the money and valuables are included as a case in relation to external business affairs, if they include the character that cannot be deemed as an honorarium, the entire amount of the money and valuables shall not be determined as “

According to the reasoning of the judgment below and the records, the plaintiff owned 25% of the shares in Hong Kong corporation and 49% of the shares in the non-party corporation, and the non-party owned the remainder of shares in the non-party corporation. The non-party thought that the plaintiff and the factory manager of the Hong Kong corporation used corporate property for the purpose of seeking liquidation of the relationship with the plaintiff. ② The non-party offered to the plaintiff the payment of KRW 250 million out of the accumulated profits of the Hong Kong corporation as the price for liquidation to the plaintiff, but the non-party offered to pay KRW 450 million out of the accumulated profits of the Hong Kong corporation as the price for liquidation. However, upon the plaintiff's demand of KRW 2 billion, the agreement of this case was reached between the plaintiff and the non-party corporation to pay the amount to the plaintiff as KRW 1.5 billion,56,926,172 of the shares in the non-party corporation's company's company's company's company's company's company's company's company's company's company's company's company's company's company's company's company's company's company's company's company's company's sales.

Therefore, in light of the motive and purpose of the Plaintiff’s receipt of KRW 1.5 billion, the relationship with the Nonparty, and the process of calculating the amount, etc., the Plaintiff and the Nonparty reached the agreement in this case to determine the share corresponding to each Plaintiff’s share in the position of the parties conflicting with each other in the course of liquidation of a partnership relationship, and thus, it is very exceptional in light of the empirical rule that the Nonparty unilaterally paid a large amount of money to the Plaintiff as the case of handling affairs or services provided by the Nonparty, and withdrawing from the partnership relationship with the Plaintiff only as a member of a partnership and audit. The amount excluding the amount received as a dividend from the liquidation of the Hong Kong corporations out of the above KRW 1.50 million, which is excluding the amount received as a result of the liquidation of the Hong Kong corporations, is likely to include the price for taking over and settling the remaining assets of the Hong Kong corporations, or the price for transferring and lending the design or pattern as a whole. Therefore, it is difficult to conclude that the above amount was paid with the entire purport of the case, including the aforementioned amount paid as the compensation for the Plaintiff’s.

(4) Nevertheless, solely on the grounds indicated in its reasoning, the lower court determined that the instant disposition was lawful by deeming the entire amount as an honorarium. In so doing, the lower court erred by misapprehending the legal doctrine on the scope of “reward” under Article 21(1)17 of the former Income Tax Act, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment.

2. An appeal on the dividend income reverting to the year 2007 shall be deemed to be filed;

The Supreme Court may investigate and determine only to the extent of filing an objection based on the grounds of appeal. As such, the grounds of appeal should specify the grounds of appeal and explain specific and explicit reasons as to which part of the judgment below violated the statutes (see Supreme Court Decision 2011Du26015, Feb. 23, 2012).

However, the appellate brief of this case did not state specific and explicit grounds on which part of the lower judgment rejected the Plaintiff's claim regarding 128,109,594 won of dividend income accrued in 2007, and did not state the grounds of appeal as to this point in the petition of appeal. Thus, it cannot be deemed that there was legitimate grounds of appeal (However, since the amount of illegal tax in this part of the lower judgment cannot be specified in the record, the entire judgment should be reversed).

3. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Sang-hoon (Presiding Justice)