Cho High Court Decision 201Do3229 ( November 04, 2011)

The construction cost, etc. of the Gu building shall not be deemed necessary expenses for the new building.

Since it is recognized that a new building was built after the acquisition of land and used as a restaurant, retail store, etc. for a considerable period of time, the acquisition value of the old building cannot be deemed necessary expenses to be deducted from the transfer value of land and the new building was transferred after the destruction of the old building, and the construction cost, etc. of the new building cannot be deemed necessary

Article 97 of the Income Tax Act

Article 102 of the Income Tax Act

2011Gudan29680 Revocation of Disposition rejecting a request for rectification of capital gains tax

XX Kim

Head of Seocho Tax Office

May 2, 2012

June 13, 2012

1. The plaintiff (appointed party)'s claim is all dismissed.

2. The costs of lawsuit shall be borne by the plaintiff (appointed party).

The defendant's rejection disposition of correction of KRW 000 per each of the transfer income tax belonging to the year 2011 against the plaintiff (appointed party) and the appointed party (hereinafter referred to as "the plaintiff") shall be revoked.

1. Details of disposition;

A. Acquisition of real estate by the plaintiffs

- Acquisition on January 31, 1989 (hereinafter referred to as the "land of this case") of 610.1m2 of the Seoul XX-dong 1439-14 site of this case (hereinafter referred to as the "land of this case")

- New construction on March 27, 1992 of neighborhood living facilities of the first floor and the second floor (hereinafter referred to as "old building") on the land in this case (hereinafter referred to as "the plaintiff's shares") and removal on August 20, 2004

- New construction on the instant land on May 8, 2007 by re-construction of neighborhood living facilities (hereinafter referred to as "new building") of the first and sixth above ground floors (hereinafter referred to as "new building").

B. Transfer of real estate and reporting and payment of transfer income tax;

- Transfer of the instant land and new buildings in 000 won on April 20, 201

- Preliminary return and payment of capital gains tax of KRW 000 to the Defendant (including the book value of KRW 000 in the cost of expenses)

C. Plaintiffs’ claim for correction and Defendant’s disposition

- Plaintiffs: Filing a claim for rectification that, on July 14, 2011, KRW 000 of the cost of new construction of the Gu building and KRW 000 of the cost of urban gas facilities are added to the necessary expenses for the instant land and new building, each of the capital expenditure amount of KRW 000 ( = 000 won + 000 of the cost of new construction + depreciation amount of urban gas facilities construction - depreciation amount of KRW 000 of the cost of urban gas facilities construction - depreciation amount of KRW 000 of the cost of urban gas facilities construction - 000 of the book value of the Gu building (the necessary expenses reported at the beginning) 1/2) was under-reported, and thus, refund of KRW

- Defendant: Refusal of Plaintiffs’ request for correction on August 9, 201 (instant disposition)

D. Implementation of the preceding trial procedures

- Filing an appeal to the Tax Tribunal on September 7, 201

- Dismissal of an appeal on November 4, 201

- The filing of the instant lawsuit on December 6, 201

[Ground of recognition] Facts without dispute, Gap evidence Nos. 1, 2, 13, 15, purport of the whole pleadings

2. Whether the instant disposition is lawful

A. Summary of the plaintiffs' assertion

Since the new construction cost of the old building and the cost of urban gas facilities construction (hereinafter referred to as the "cost of dispute") fall under the capital expenditure of the transferred real estate and should be included in the necessary expenses, the disposition of this case rejecting the plaintiffs' request for correction is unlawful.

(b) Relevant statutes: Attached Form 1.

C Judgment

(1) The transfer income amount is calculated by dividing it by land and building (see Articles 102(1) and 94(1) of the Income Tax Act). Whether the key amount falls under the necessary expenses in calculating the transfer income amount of the instant land and new building, is divided into whether the key amount can be deemed necessary expenses for the instant land and whether it can be deemed necessary expenses for the new building.

(2) Whether the key amount can be deemed as necessary expenses for the instant land

According to Article 97 (1) of the Income Tax Act, as necessary expenses to be deducted from the transfer value of land in principle are related to the corresponding land, the acquisition value of a separate individual building from the land is not, in principle, necessary expenses to be deducted from the transfer value of land: Provided, That in cases where a building is removed to be used together with the land and a building on the ground, and only the land is transferred in the state of a site, such as the commencement of removal of the building within a short time after the acquisition, and where it is deemed that the acquisition of the land and the building is obviously deemed to have been for the purpose of utilizing only the land as a result of the removal of the building, the acquisition value, removal cost, etc. of the removed building may be included in the necessary expenses of the transferred property included in the transfer value of the land (see Supreme Court Decisions 92Nu7399, Sept. 8, 192; 92Nu8781, Oct. 27,

However, according to the above evidence, the plaintiffs acquired the land of this case on February 2, 1989 and used it as a restaurant, retail store, etc. for more than 12 years from August 20, 2004 after the construction and acquisition of the old building on the land of this case on March 27, 1992. In light of this fact, the plaintiffs knew that the old building was not acquired collectively from the beginning to the purpose of utilizing only the land of this case, and there are no other circumstances suggesting that the acquisition of the building of this case is obvious for the purpose of using only the land of this case.

Therefore, the acquisition value of the Gu building cannot be deemed as necessary expenses to be deducted from the transfer value of the land of this case, and this part of the plaintiffs' assertion is without merit.

(3) Whether the key issue amount can be deemed as necessary expenses for the new building

Capital expenditure under Article 97(1)2 of the Income Tax Act, and Articles 163(3) and 67(2) of the Enforcement Decree of the Income Tax Act refers to repair cost disbursed to extend the lifespan of depreciable assets owned by a business operator or to increase the real value of the relevant assets. In this case, inasmuch as the former building is only destroyed and transferred, and the object of transfer is also a new building, it cannot be deemed as capital expenditure. This part of the Plaintiffs’ assertion is without merit.

According to the General Rule 33-671, subparagraph 4 of the Income Tax Act (the example of capital expenditure for fixed assets), the plaintiffs asserted to the effect that the disposition of this case is unfair, since the above provision contains a provision that "the book value of the existing building and the cost of removal shall be capital expenditure for the new building when removing the existing building in order to construct a new building on the land owned by them."

The general rule of the Income Tax Act is merely an administrative rule that instructs the criteria for interpretation and enforcement of the tax law within the tax authority, and it is not an effective law that binds the court or the people, and has been implemented for a long time (see, e.g., Supreme Court Decision 92Nu7580, Dec. 22, 1992). The general rule is an example provision of Article 67(2) of the Enforcement Decree of the Income Tax Act on the capital expenditure of the businessman's depreciable assets, and Article 67(2) of the Enforcement Decree of the Income Tax Act is applicable mutatis mutandis when calculating necessary expenses of transferred assets (Article 163(3) of the Enforcement Decree of the Income Tax Act), so it is reasonable to view that Article 166(1) of the Enforcement Decree of the Income Tax Act does not apply to the calculation of necessary expenses of transferred assets unless it is limited as seen in the above (2) of the Enforcement Decree of the Income Tax Act. In addition, the issue of whether the status of residents of a housing redevelopment project or a housing reconstruction project is transferred can be considered as necessary expenses.

Therefore, this part of the plaintiffs' assertion is without merit.

3. Conclusion

Therefore, the plaintiffs' claims are dismissed in entirety due to the lack of reason.