[1] In a case where a member of a reconstruction association provides an existing house or site and acquires a newly-built house in accordance with the project plan, whether it constitutes “case of becoming two houses temporarily and temporarily” under Article 155(1) of the former Enforcement Decree of the Income Tax Act (negative)

[2] In a case where all members of a reconstruction association live in another house acquired during the implementation period of a reconstruction project and transfer another house to a house acquired according to such project plan, the requirements for non-taxation from capital gains tax are required

[3] In a case where a person who acquired and possessed a reconstruction apartment and thereafter acquired another house after approval of the reconstruction project plan transfers another house within one year after the acquisition of a new apartment pursuant to the reconstruction project plan, the case holding that the two houses for one household at the time of the transfer date do not fall under "one house for one household" under Article 155 (1) 2 (c) of the former Enforcement Decree of the Income Tax Act, and that further, it does not need to meet the requirements of Article 154 (1) 2 (c) of the same Enforcement Decree

[1] The purpose of Article 155 (1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254 of Dec. 31, 2005) is to: (a) where one household which owns one house in Korea becomes two houses temporarily by acquiring another house before transferring the house; (b) where another house becomes two houses temporarily by transferring the previous house within one year from the date of acquiring the other house, it is intended not to impose capital gains tax on the transfer of one house for one household; and (c) even where a reconstruction association member provided the relevant association with the existing house or building site and provided the said association with the existing house or building site, even if the newly-built house was acquired in accordance with the said business plan, it does not mean that the existing house has been acquired separately from the existing house; (d) thereby, it cannot be deemed that the household which owns one house in Korea

[2] According to the main sentence of Article 154(1) and proviso 2(c) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254 of Dec. 31, 2005), and Article 71(2)4 of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 311 of Apr. 14, 2003), where a member of a reconstruction association acquires another house during the implementation period of a reconstruction project and resides in another house and transfers another house to all the members of the household acquired by the house during the implementation period of the reconstruction project, even if the period of possession and residence is not restricted, it constitutes a case where one household possesses one house in Korea as of the date of transfer and satisfies the requirements that it is exempt from capital gains tax.

[3] Where a person who acquired and possessed a reconstruction apartment and thereafter acquired another house after approval of the reconstruction project plan transfers another house within one year from the date of acquisition of a new apartment pursuant to the reconstruction project plan, the case holding that the two houses for one household at the time of the transfer date do not fall under "one house for one household" under Article 155 (1) 2 (c) of the former Enforcement Decree of the Income Tax Act, and that further, it is unnecessary to consider the requirements under Article 154 (1) 2 (c) of the Enforcement Decree of the same Act

[1] Article 89 subparagraph 3 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), Article 155 (1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254 of Dec. 31, 2005) / [2] Article 154 (1) 2 (c) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254 of Dec. 31, 2005) (see current Article 156-2 (5) of the former Enforcement Decree of the Income Tax Act), Article 71 (2) 4 (see current Article 156-2 (5) of the Enforcement Rule of the Income Tax Act) of the former Enforcement Decree of the Income Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 311 of Apr. 14, 2003) / [3] Article 154 (1) 2 (3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 4515 (see current Article 14)

[1] Supreme Court Decision 98Du13508 delivered on December 8, 1998 (Gong199Sang, 165)

Plaintiff

The Director of the Pacific District Office

Seoul High Court Decision 2006Nu25119 decided April 20, 2007

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

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Article 89 subparagraph 3 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) provides that "one house for one household as prescribed by the Presidential Decree and one land appurtenant thereto shall not be subject to capital gains tax." Article 154 (1) (main sentence) and proviso 2 (c) of the former Enforcement Decree of the Income Tax Act (amended by the Presidential Decree No. 19254 of Dec. 31, 2005; hereinafter referred to as the "former Enforcement Decree") provides that "where one household possesses one house in Korea as of the transfer date and the period of holding one house is three or more years (in part, two or more years of residence period), it shall not be subject to restriction on the period of possession and residence, and where one household acquires one house in Korea as of the transfer date and another house under the former Enforcement Decree of the Income Tax Act (amended by the Ordinance of the Ministry of Finance and Economy No. 1572, Apr. 14, 2003; hereinafter referred to as one house under the former Enforcement Rule of the Income Tax Act shall apply.

The purpose of Article 155(1) of the Enforcement Decree is to choose not to impose capital gains tax on the transfer of one house for one household if one household which owns one house temporarily becomes two houses by acquiring another house before transferring the house in Korea. Even if a reconstruction association provides the association with an existing house or site and acquires a newly-built house in accordance with its business plan, it does not constitute a case where one household which owns one house in Korea temporarily becomes two houses by acquiring another house before transferring the house (see Supreme Court Decisions 98Du13508, Dec. 8, 1998; 200Du3535, Dec. 22, 2000, etc.).

In the same purport, the court below recognized the fact that the plaintiff acquired and possessed the reconstruction apartment of this case on November 26, 1987 and acquired the new apartment of this case on September 30, 2004 after approval of the reconstruction project plan on September 6, 200, and transferred the previous apartment of this case on March 15, 2005, within one year after the acquisition of the new apartment of this case. The court below determined that the transfer of the previous apartment of this case does not fall under the non-taxation requirement of capital gains tax under Article 155 (1) of the Enforcement Decree for the transfer of the previous apartment of this case on the ground that the acquisition of the new apartment of this case does not fall under the case of temporary acquisition of another house before the transfer of one house, and it did not fall under the non-taxation requirement of capital gains tax under Article 155 (1) of the Enforcement Decree, as otherwise alleged in the ground of appeal.

2. Regarding ground of appeal No. 2

According to the main text and proviso of Article 154(1)2(c) of the former Enforcement Decree, and Article 71(2)4 of the former Enforcement Rule, where a member of a reconstruction association acquires another house during the implementation period of a reconstruction project and resides and transfers another house to a director in accordance with the project plan, even if the period of possession and residence is not restricted, the income accrued from the transfer of the house shall be subject to non-taxation of capital gains tax, even if it does not fall under the case where one household owns one house in Korea as of the date of transfer.

In the same purport, the court below is just in rejecting the plaintiff's assertion that only the provisions of Article 154 (1) 2 (c) of the former Enforcement Decree and Article 71 (2) 4 of the former Enforcement Rule are applicable, on the ground that the plaintiff's ownership of the new apartment of this case as of the date of transfer of the previous house in this case as of the date of transfer of the previous house in this case, two houses for one household can be seen as one house for one household, first of all, and it can be seen as satisfying the requirements of Article 155 (1) proviso 2 (c) of the former Enforcement Decree and Article 154 (1) proviso 2 (c) of the former Enforcement Decree only if they meet the requirements of Article 154 (1) proviso 2 (c) of the former Enforcement Decree and Article 71 (2) 4 of the former Enforcement Rule. There is no error in the misapprehension of legal principles

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Ji-hyung (Presiding Justice)