Plaintiff (Law Firm Dong-dong et al., Counsel for the plaintiff-appellant)

Gangwon-gu Director of the District Office

August 18, 2009

1. The plaintiff's claim is dismissed.

2. Litigation costs shall be borne by the plaintiff.

The Defendant’s disposition of imposition of capital gains tax of KRW 3,643,792,890 for the Plaintiff on April 1, 2008 shall be revoked.

1. Details of the disposition;

A. On June 29, 2001, the Plaintiff jointly with the Nonparty, through a voluntary auction procedure, acquired the land below 4,086§³ (number 1 omitted), 100m2 (number 2 omitted), 418m2 (number 3 omitted), 33m2 (number 4 omitted), 936m2 (number 5 omitted), 874m2 (number 6 omitted), 208m2 (number 8 omitted), 1296m2 (number 10 omitted), 1319m2 (number 12, 125m25, 295m2, 1297, 292, 2000, 129m2, 3000, 129m2, 1325m25, 136m25, 200 each of the instant lands (number 27m26, 137m25, 2700).

B. On April 11, 2008, the Defendant rendered the instant disposition that corrected and notified KRW 3,643,792,890 to the Plaintiff for the portion reverted to year 2007, by reporting the transfer of each of the instant lands, which was calculated by applying the provisions of the Transfer Tax Act, to the transfer of the land for non-business use, excluding the land size of 936 square meters in the above Long-gu (number 5 omitted) river.

[Reasons for Recognition] Evidence No. 1, Evidence No. 5-1 to 14, Evidence No. 6, Evidence No. 1, Evidence No. 4-1, 2, and Evidence No. 5, and the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) On June 29, 2001, the Plaintiff acquired each of the instant lands jointly with the Nonparty to operate the housing construction business with the Nonparty Company, and applied for approval of the housing construction business plan under the name of the Nonparty Company on February 11, 2003, and obtained approval of the business plan on December 30, 2005, but thereafter, in case the land owners are divided, the Plaintiff renounced the joint housing construction business with the Nonparty Company and transferred each of the instant lands to the Nonparty Company on June 18, 2007 due to the circumstance that the project progress may be delayed due to legal restrictions on subdivisions, combined pens, etc. of land.

(2) However, since each of the above lands at the time of the Plaintiff’s acquisition of each of the above lands was under suspension of housing construction work while implementing the housing construction project, the actual status was already changed to the site despite the land category of the above lands and answers, and the Plaintiff acquired each of the above lands on June 29, 2001 and applied for approval of a housing construction project plan, including the above lands, jointly with the non-party company, and promoted housing construction project including the sale in lots, and transferred each of the above lands to the non-party company inevitably because it is difficult for the joint promotion of the project due to legal constraints. Thus, each of the above lands falls under the "land deemed directly related to the business" under Article 104-3(1)4 (c) of the Income Tax Act, Article 168-11(1)14 of the Enforcement Decree of the Income Tax Act and Article 168-13(1)14 of the Enforcement Decree of the Income Tax Act, and even if the Plaintiff does not do so, since it does not fall under the above land subject to separate taxation under Article 134 subparag. 13(b)

(3) Furthermore, even if each of the instant lands was not excluded from non-business land for the aforementioned reasons, the Plaintiff could not use each of the instant lands in order to meet the requirements under the relevant laws and regulations while promoting sale after filing an application for approval of a business plan and obtaining approval for the construction of housing on a site including each of the instant lands jointly with the non-business company. Thus, this constitutes “the prohibition of use due to the provisions of law after acquiring the land, etc.” under Article 104-3(2) of the Income Tax Act and also falls under the requirements of

(4) Next, on March 29, 2007, the Plaintiff acquired 1/2 shares of each of the instant land from the above Nonparty, and transferred each of the instant land to the non-party company on June 18, 2007. As seen in the above (2) above, the Plaintiff’s share of each of the instant land, including each of the instant land, through the non-party company, was excluded from the period of possession of each of the instant land, since each of the instant land becomes subject to the separate taxation of property tax under Article 104-3(1)4 (b) of the Income Tax Act, Article 182(1)3 (d) of the Local Tax Act, Article 132(4)8 of the Enforcement Decree of the Local Tax Act, since the Plaintiff acquired from the above non-party on March 29, 2007, and transferred it to the non-party company on June 18, 2007.

(5) Nevertheless, the Defendant’s application of the heavy taxation of capital gains tax on the transfer of each of the instant lands to the land for non-business use is unlawful. Thus, the instant disposition should be revoked.

(b) Fact of recognition;

(1) The Plaintiff, as a major shareholder of the non-party company, was to promote housing construction projects in Jyang-gu Seoul Special Metropolitan City in South-gu with the non-party company, and received 1/2 shares of each of the instant land included in the housing construction project site in the real estate auction procedure, jointly with the non-party, and paid the successful bid price on June 29, 2001.

(2) After that, the non-party company also acquired the land of 16 lots, including 1047 square meters, which is located in the anticipated site for the housing construction project, in the Namyang-si, Chungcheongnam-gu, Chungcheongnam-gu, Seoul Special Metropolitan City (number 15 omitted), or secure the right to use the land. Around June 2002, the non-party company conducted a survey of the current status of the anticipated site including each of the instant land, and requested the preparation of apartment design drawings to be constructed at the architect office around September of the same year, and filed an application for approval of the housing construction project plan under the Housing Act on February 11, 2003, after concluding a service contract for the progress of the housing construction project around December 31 of the same year.

(3) After that, the non-party company obtained the approval of housing construction project plan from the Namyang market on December 30, 2005 through supplementation under the Building Act and other relevant Acts and subordinate statutes for a period of two years. After that, on June 7, 2003, the non-party company made efforts to select the construction project after that date. However, on June 7, 2003, when the real estate competition occurred due to the reasons such as the designation of the Gyeonggi-do discharged area as the overheated speculative district, the non-party company did not select the construction project, but entered into a contract for the construction project with the company for an apartment on January 31, 200

(4) After that, the non-party company filed a report on the commencement of housing construction with the Gangnam-gu Mayor on June 13, 2007, but the non-party transferred one-half share of each of the land of this case to the plaintiff on March 29, 2007 in order to avoid unsold risks, etc. The non-party transferred to the plaintiff one-half share of each of the land of this case on March 29, 2007, where the owner of a housing construction site is different from the other owner, it is impossible to sell the apartment in accordance with the Building Sale Act, etc., and the land combination, etc. of the land ordered by the Namyang-gu Mayor under Articles 47 and 48 of the Administrative Compliance Matters at the time of approval of the business plan was impossible pursuant to Article 20(3) of the Cadastral Act, the plaintiff renounced

(5) Meanwhile, since the Plaintiff acquired each of the instant lands jointly with the Nonparty at the time of the Plaintiff’s acquisition of each of the instant lands, Hongk Construction Co., Ltd. was engaged in suspending the housing construction project, the actual status was changed to the site regardless of the previous land category, such as the answer, etc.

[Ground of recognition] Each entry of Gap evidence 1 to 21 (including paper numbers), Eul evidence 1 to 6 (including paper numbers), and the purport of the whole pleadings

C. Determination

(1) Whether each land of this case constitutes non-business land under Article 104-3 (1) 4 of the Income Tax Act

(A) Whether it constitutes land for non-business use under Article 104-3 (1) 4 of the Income Tax Act

1) According to Article 104-3 (1) 4 of the Income Tax Act and Article 168-6 (1) 1 of the Enforcement Decree of the same Act, where the period of land ownership is not less than five years, land falls under land other than farmland, forest land, and stock farm land for a period exceeding two years from among five years immediately preceding the date of transfer (a) and one year from among three years immediately preceding the date of transfer (b) and a period exceeding one year from among three years immediately preceding the date of transfer (c) and a period exceeding 20/100 of the period of land ownership, unless there are special circumstances.

2) However, according to the above facts, each of the above lands at the time when the Plaintiff acquired each of the above lands with the Nonparty on June 29, 2001, was engaged in the work of suspending the housing construction project, and the actual situation was changed to the site despite the land category such as the previous and answer, and thereafter, on March 29, 2007, the Plaintiff acquired the remainder of 1/2 shares of each of the instant lands from the above Nonparty on March 29, 2007, additionally acquired the remainder of 1/2 shares of each of the instant lands from the above Nonparty on June 18, 2007, and barring any special circumstance, each of the instant lands constitutes non-business land as stipulated in the above Acts and subordinate statutes, barring any special circumstance.

(B) Whether Article 104-3 (1) 4 (b) of the Income Tax Act applies to the exclusion of non-business land

1) According to Article 104-3 (1) 4 (b) of the Income Tax Act, Article 182 (1) 3 (d) of the Local Tax Act, and Article 132 (4) 8 of the Enforcement Decree of the same Act, a housing construction business operator registered as a housing construction business operator under the Housing Act obtains approval of a business plan under the same Act to construct housing, which is offered for a housing construction business, shall be excluded from the non-business land under Article 104-3 (1) 4 of the Income Tax Act, which is subject to separate taxation of local

2) We examine the following facts: (a) the Plaintiff entered into an internal housing construction project with the non-party company at Seoyang-si, Namyang-si; (b) completed the auction price on June 29, 2001, jointly with the non-party; (c) the non-party company acquired land on 16 lots including 1047 square meters in the anticipated site, or secured the right to use the land; and (d) on February 11, 2003, the Plaintiff filed an application for approval of the housing construction project on the land including each of the instant land in this case with the non-party company's internal housing construction project plan for a period of two years; (b) the Plaintiff obtained approval of the housing construction project plan from the non-party company under the Building Act and the non-party company's internal housing construction project plan for a period of two years; and (c) it is difficult for the Plaintiff to jointly obtain the approval of the construction project plan within the scope of the non-party company's basic housing construction project plan and the housing construction project owner.

Furthermore, even if the Plaintiff is a joint business proprietor of a housing construction project or a non-party company is included in the site of the housing construction project approved by the non-party company, the issue of whether each of the instant land constitutes a non-business land under Article 104-3 (1) 4 of the Income Tax Act is not determined as at the time of transfer, but as seen earlier, if the land for non-business use exceeds the whole period from the time of transfer to the time of transfer under subparagraph 1 of Article 168-6 of the Enforcement Decree of the same Act, including the whole period from the time of transfer, the pertinent land is deemed to be regarded as a non-business land. Thus, the non-party company is excluded from the land for non-business use because each of the instant land was subject to separate taxation on December 30, 205, from June 18, 2007 to December 30, 2005 to 20.6.18, 2005 to 30/16.208 of the above land for non-business use.

3) Therefore, this part of the Plaintiff’s assertion is difficult to accept.

(C) Whether Article 104-3 (1) 4 (c) of the Income Tax Act applies to the exclusion of non-business land

1) According to Article 104-3 (1) 4 (c) of the Income Tax Act, and Article 168-11 (1) 14 of the Enforcement Decree of the Income Tax Act, land similar to those under Article 168-11 (1) 1 through 13 of the Enforcement Decree of the Income Tax Act, which has considerable reasons for deeming that it is directly related to the business in consideration of the situation of the use of land, whether the pertinent laws and regulations are fulfilled, etc. shall be excluded from the non-business land under Article 104-3 (1)

2) However, it is difficult to view that the Plaintiff, other than the non-party company that obtained approval of a business plan as seen earlier, falls under a joint business proprietor of a housing construction project under the said Income Tax Act, the Local Tax Act, or the Housing Act. Thus, the mere fact that each of the instant lands acquired by the Plaintiff was included in the business site for which the non-party company obtained approval of a business plan does not necessarily constitute “the land with considerable grounds to recognize that it

Furthermore, even if the plaintiff is a joint proprietor of a housing construction business or a non-exclusive proprietor of a housing construction business even though each land of this case is included in the site of the housing construction business plan approved by the non-party company, and thus excluded from the non-business land, considering the respective provisions of Article 168-11 (1) 1 through 13 of the Enforcement Decree of the Income Tax Act and the strict interpretation principle derived from the principle of no taxation without law, it is reasonable to view that the non-party company was after December 30, 2005, when the non-party company obtained approval of the business plan, and even if each land of this case is excluded from the non-business land as of the above point of time, each land constitutes the non-business land under Article 168-6 (1) 1 of the Enforcement Decree of the Income Tax Act, even if it falls under the non-business land for a period necessary to determine the non-business land under Article 104-3 (1) 4 of the Income Tax Act.

3) Therefore, the Plaintiff’s assertion on this part is without merit.

(D) Whether an inevitable reason under Article 104-3(2) of the Income Tax Act exists

1) According to Article 104-3 (2) of the Income Tax Act, in applying the provisions of Article 104-3 (1) of the same Act, in cases where land falls under land for non-business due to the prohibition of use due to the provisions of law after the acquisition of land or other inevitable reasons prescribed by the Presidential Decree, it may not be deemed land for non-business business under the conditions as prescribed by the Presidential Decree. According to Article 168-14 (1) 3 of the Enforcement Decree of the same Act and Article 83-5 (1) 5 of the Enforcement Decree of the same Act, land falling under inevitable reasons prescribed by the Ordinance of the Ministry of Finance and Economy by taking into account the legal restrictions, status of land, reason for acquisition or use due to public interest or inevitable reasons other than Article 168-14 (1) 1 and 2 of the Enforcement Decree of the same Act, land falling under any of the subparagraphs of Article 104-3 (1) of the Income Tax Act shall not be deemed land for a period prescribed by the Ordinance of the Ministry of Finance and Economy.

2) However, it is difficult to view that the Plaintiff, other than the non-party company that obtained approval of the business plan as seen earlier, falls under a joint business proprietor of the housing construction project under the said Income Tax Act, the Local Tax Act, and the Housing Act. Thus, the mere fact that each of the instant lands acquired by the Plaintiff was included in the land for which the non-party company obtained approval of the housing construction project plan is located is difficult to view it as falling under the land that the Plaintiff started to construct for the purpose of acquiring

Furthermore, even though the Plaintiff is a joint proprietor of a housing construction business or a non-business owner, each of the instant lands is included in the site of the housing construction business approved by the non-party company, and is included in the land ‘land for which the building has not been settled on the ground' under the above Act and subordinate statutes, as seen earlier, the issue of whether it falls under the non-business land under Article 104-3 (1) 4 of the Income Tax Act shall not be determined as at the time of transfer, but shall be deemed to fall under the non-business land for the period under subparagraph 1 of Article 168-6 of the Enforcement Decree of the Income Tax Act, including the whole period from the time of transfer to the time of transfer, from 0. 2. 6. 6. 6. 6. 20 to 20. 6. 13. 6. 6. 207, which is the time of transfer of each of the instant lands from June 18, 2007 to 20.

In this regard, the Plaintiff could not use each of the above land in order to implement housing construction business on the site including each of the above land in cooperation with the non-party company after filing an application for approval of a business plan and obtaining approval, and to meet the requirements under the relevant Acts and subordinate statutes. Thus, the Plaintiff asserted that the entire period from the acquisition date of each of the above land to the transfer date falls under the “Prohibition of Use due to the Provisions of Acts and subordinate statutes after acquiring land, etc.” under Article 104-3 (2) of the Income Tax Act, but it is difficult to accept the allegation that the above period of use falls under Article 104-3 (2) of the Income Tax Act, Article 168-14 (1) 3 of the Enforcement Decree of the same Act, Article 83-5 (1) 5 of the Enforcement Decree of the same Act, and Article 83-5 (1) 5 of the Enforcement Decree of the same Act, and Article 104-3 (2) of the Income Tax Act, which is derived from the principle of no taxation without law.

3) Therefore, this part of the Plaintiff’s assertion is difficult to accept.

(E) Whether each land of this case constitutes non-business land owned by the non-party 1/2

On or after December 30, 2005, the Plaintiff asserted that the period of possession of each of the instant land transferred to the non-party company on March 29, 2007 to the non-party company is excluded from the non-business land, since each of the above land falls under the land subject to separate taxation of property tax under Article 104-3 (1) 4 (b) of the Income Tax Act, Article 182 (1) 3 (d) of the Local Tax Act, and Article 132 (4) 8 of the Enforcement Decree of the Local Tax Act, since the Plaintiff acquired each of the instant land from the non-party on December 29, 2007 and transferred it to the non-party company on June 18, 2007, it is difficult to view that the Plaintiff except the non-party company that obtained approval of the business plan as seen earlier falls under the business joint business place under the Income Tax Act, the Local Tax Act, and the Housing Act.

(2) Therefore, the Defendant’s instant disposition, which concluded as above, is lawful.

3. Conclusion

Therefore, the plaintiff's claim of this case seeking the revocation of the disposition of this case is without merit, and it is dismissed. It is so decided as per Disposition.

[Attachment Form 5]

Judges Full Order