In a case where a farmland is newly purchased to substitute only part of a lot of land which a farm household has owned, if it meets the requirements for substitute land under Article 5 subparagraph 6 (j) of the Income Tax Act and Article 14 (7) of the former Enforcement Decree of the Income Tax Act, whether the transfer income tax due to the transfer of the previous land corresponding thereto is levied (affirmative)

Article 5 subparagraph 6 (j) of the Income Tax Act and Article 14 (7) of the former Enforcement Decree of the Income Tax Act are intended to protect farmers by allowing and guaranteeing free substitution of farmland, thereby promoting agricultural development and encouragement. Thus, the same applies to cases where a farmer transfers a lot of land in his/her own stock and purchases a new farmland to substitute a part of the land, as well as to cases where he/she transfers a lot of land in his/her own stock and substitute a lot of land for the entire land, and the need for such protection is the same. Thus, if the newly purchased farmland meets the substitute requirements for the part of the farmland transferred according to its size and value, the transfer income tax for the transfer of the existing land shall not be imposed (in this case, if it is unclear whether the previous farmland in his/her own stock is substitute or not, it shall be decided according to the choice of farmers who are taxpayers).

Article 5 subparagraph 6 (j) of the Income Tax Act, Article 14 (7) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 12564 of Dec. 31, 1988)

[Judgment of the court below]

Head of tax office

Gwangju High Court Decision 89Gu1192 delivered on November 13, 1990

The judgment of the court below is reversed and the case is remanded to the Gwangju High Court.

1. Examining the record, the Plaintiff did not assert that the Defendant’s disposition of this case on the land No. 1 in the judgment of the court below was double taxation, and therefore, it is not reasonable to argue that the court below omitted the judgment.

2. In this case, the court below held that the plaintiff's land No. 5 in the judgment of the court below in this case was farmland purchased by the plaintiff for the purpose of cultivating them together with the donation to children, and thus it constitutes a substitute land for the land No. 1 in the previous cultivated. The court below held that the above land No. 5 did not constitute substitute land pursuant to the above provision because the plaintiff could not be deemed to have acquired it because only the plaintiff had registered the name of son directly from the former owner without completing the registration of ownership transfer. The judgment below is just and the appeal to criticize this point cannot be accepted.

3. Article 5 subparagraph 6 (j) of the Income Tax Act and Article 14 (7) of the former Enforcement Decree of the Income Tax Act stipulate that capital gains tax shall not be imposed on the transfer of the previous farmland in cases where the farmland newly acquired is transferred and acquired for the purpose of farming within one year from the date of such transfer if the area of the farmland to be newly acquired is not less than the area of the farmland to be transferred or the value thereof is not less than 1/2 of the value of the farmland to be transferred. The legislative intent of the legislation is to protect farmers by allowing and guaranteeing free substitution of farmland, thereby promoting the development and encouragement of agriculture by protecting farmers. Thus, even in cases where a new purchase of farmland only to substitute for the whole part of the farmland by a farmer, is the same as the need for such protection, if the newly purchased farmland meets the requirements of the above provision on part of the farmland transferred according to its size and value (in such cases, if the previous farmland is not clear according to which it is a taxpayer).

According to the decision of the court below in this case, the plaintiff purchased the land Nos. 2 and 3 including the land No. 1 in this case in a lump sum from the No. 1 in the judgment of the court below, and transferred the land No. 1 in several ways on October 22, 1987 through October 18, 1988, including the transfer of the land No. 1 in this case, and acquired the land No. 4 in this case from the No. 1 in the 1987-18, as well as the acquisition of the land from the No. 4 in this case from the No. 1987-18. The plaintiff asserted that the land No. 1 in this case was transferred and the newly acquired land was acquired as the substitute land, and the court below should have examined whether the transfer and acquisition meet the different requirements of non-taxation under the above provisions.

Nevertheless, the court below rejected the plaintiff's assertion on the ground that the area of newly acquired farmland in comparison with the newly acquired land Nos. 1, 2, and 3 of this case, which is the previous farmland owned by the plaintiff and transferred to his business, falls short of the area of farmland to which the area of the newly acquired farmland was transferred, and there is no material to view that the value is more than 1/2 of the value of the previous farmland. In this regard, the court below erred by misapprehending the legal principles on the substitute land of farmland or failing to exhaust all necessary deliberations, and the grounds

4. Therefore, the lower judgment should be reversed and the lower judgment should be further examined as to whether the Plaintiff, as so argued, was a farmer who cultivated the previous farmland, and whether it can be recognized that the Plaintiff acquired the farmland for the purpose of self-defense in light of the holding period of the instant land No. 4 and the developments leading up to the purchase thereof.

The judgment of the court below shall be reversed and the case shall be remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Jong-soo (Presiding Justice)