Plaintiff

The director of the Southern Incheon District Office

Incheon District Court Decision 2010Gudan945 Decided September 9, 2010

June 21, 2011

1. Revocation of a judgment of the first instance;

2. The Defendant’s imposition of KRW 249,478,510 on January 2, 2009 against the Plaintiff on January 2, 2009 is revoked.

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

The phrase “1.5 of January 5, 2009” in the written complaint appears to be a clerical error in each of “249,478,510 won” and “249,478,160 won.”

1. Details of the disposition;

A. On June 13, 198, the Plaintiff: (a) transferred high-dong (number 1 omitted) 2,158 square meters (hereinafter “instant land”); (b) the instant land was divided into the same (number 1 omitted), (number 2 omitted), and (c) the land category was changed to the factory site thereafter; (d) on April 18, 2006, the Plaintiff acquired 189 square meters for the same (number 2 omitted) 189 square meters to Nonparty 1; and (e) on April 26, 2006, the Plaintiff reported and paid the transfer income tax by calculating the transfer margin according to the standard market price on May 12, 2006.

B. On January 2, 2009, the Defendant calculated transfer margin as the actual transaction price by deeming the instant land as the land for non-business use, and notified the Plaintiff of a correction disposition imposing additional capital gains tax of KRW 249,478,510 for the year 2006 (hereinafter “instant disposition”).

C. The Plaintiff, who was dissatisfied with the instant disposition, filed a tax appeal with the Tax Tribunal on July 24, 2009 upon filing an objection on April 6, 2009, but was dismissed on October 30, 2009.

[Reasons for Recognition] Unsatisfy, Gap evidence 1, 9, Eul evidence 1, the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

Since the Plaintiff transferred the instant land to a rural village and self-help for 18 years, it constitutes farmland owned at the time of immigration pursuant to Article 6 (2) 4 of the Farmland Act (amended by Act No. 8352, Apr. 11, 2007; hereinafter the same) and the instant land was transferred to the Plaintiff on April 31, 2006, which was before December 31, 2009, pursuant to Article 83-5 (3) 2 of the Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 503, Apr. 106; hereinafter the same), the instant land shall not be deemed land for non-business use pursuant to Article 83-5 (3) 2 of the Enforcement Rule of the Income Tax Act.

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

(1) Article 96(1) and (2)8 of the Income Tax Act (amended by Act No. 7837, Dec. 31, 2005; hereinafter the same shall apply) shall apply to the transfer value of assets according to the actual transaction price between the transferor and transferee at the time of transfer of the assets (hereinafter “actual transaction price”): Provided, That where assets such as land are transferred by December 31, 2006, the transfer value shall be based on the standard market price as at the time of transfer of the assets, and where such assets are non-business land under Article 104-3 of the Income Tax Act, the actual transaction price shall be based on the actual transaction price, and where such assets are non-business land under Article 104-3(1)1 of the Income Tax Act, Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19254, Dec. 31, 2005; hereinafter the same shall apply) and the period exceeding 10 years and 2 years prior to the transfer date of farmland in the area or farmland.

Meanwhile, Article 104-3 (2) of the Income Tax Act provides that the land for non-business use may not be deemed the land for non-business use due to the provisions of the Act after the acquisition of the land, or other inevitable reasons prescribed by the Presidential Decree. Article 168-14 (3) of the Enforcement Decree of the Income Tax Act provides that "any land falling under inevitable reasons prescribed by the Ordinance of the Ministry of Finance and Economy in consideration of the statutory restrictions on other reasons, such as public interest or inevitable reasons, the current state of land acquisition, or the current state of use of land, etc." Article 83-5 (3) 2 of the Enforcement Rule of the Income Tax Act provides that one of the land falling under inevitable reasons prescribed by the Ordinance of the Ministry of Finance and Economy shall be deemed as the land for non-business use, and Article 6 (2) 4 of the Farmland Act provides that a farmer who has been engaged in farming before December 31, 2006 or an agricultural corporation which has been engaged in farming for not less than 2 years shall be deemed as the land for non-business use.

2) The land of this case is a non-business land as provided in Article 104-3 (1) 1 (b) of the Income Tax Act, since it was designated as an industrial area under Article 1915 of the Ministry of Construction and Transportation notification of October 19, 1965, before the Plaintiff acquired as farmland for which the land was actually used for farming, and was designated as an exclusive industrial area on May 16, 1975 as an industrial area under Article 75 of the Ministry of Construction and Transportation notification of May 16, 1975. On November 13, 2006, Incheon Metropolitan City notification No. 203 of the National Land Planning Act, which continues to be maintained as an industrial area among the urban areas under the National Land Planning Act, or it can be recognized by the statement of evidence No. 3.

However, Article 104-3 (2) of the Income Tax Act, Article 168-14 (3) 5 of the Enforcement Decree of the Income Tax Act, and Article 83-5 (3) 2 of the Enforcement Rule of the Income Tax Act provides that "the land transferred by a person who had been farming before December 31, 2006 as farmland owned by this farm pursuant to Article 6 (2) 4 of the Farmland Act shall not be deemed land for non-business purposes unless the pertinent land is farmland within an urban area. Thus, it is reasonable to interpret that the farmland concerned shall not be deemed land for non-business purposes if the requirements under Article 83-5 (3) 2 of the Enforcement Rule of the Income Tax Act are met, regardless of whether it is farmland in an urban area, and that Article 3 of the Addenda of the Income Tax Act provides that "the amended provisions of the Income Tax Act concerning capital gains from this Rule shall apply to the transfer of land for the first time after the enforcement of the said Rules." Article 83-2 of the Enforcement Rule of the Income Tax Act shall not apply to the transfer of land.

Therefore, the instant disposition that imposed capital gains tax by calculating the transfer value based on the actual transaction price as land for non-business use is unlawful.

3. Conclusion

If so, the plaintiff's claim is reasonable, and the judgment of the court of first instance is unfair with different conclusions, so the plaintiff's appeal is accepted and the disposition of this case is revoked, and it is so decided as per Disposition.

[Attachment Form 5]

Judges Kim Chang-suk (Presiding Justice)