early 2010 Heavy0631 (Law No. 1030, 2010)

The meaning of damage to the payment itself which is the original content of the other income-related contract

The term "damage to the payment itself which is the contents of the future contract" refers to the positive damage to the performance itself, which is the object of the contract, so the damage compensation (e.g., the compensation for the actual loss) is excluded from the taxable object, but the "damage exceeding the damages" refers to the damage caused by the failure to obtain the increase (ordinary performance profit) of the property that would have been incurred if the contract had been properly implemented, so the damage compensation for the damage (e.g. the compensation for the damage) is subject to other income.

The contents of the decision shall be the same as attached.

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1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The disposition of imposition of global income tax of KRW 406,292,590 against the Plaintiff on February 5, 2010 shall be revoked.

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1. Details of disposition;

A. Conclusion of a sales contract and an agreement for penalty;

1) On May 29, 2006, the Plaintiff entered into a provisional contract with AA Construction Co., Ltd. (hereinafter referred to as the “AA Construction”), BCC 1431-31 2,606 m2,606 m2, 1,771 m2, and 631 m2,771 m2, Dong-dong, So-dong, Do-dong, Do-dong, Dong-dong (the lot number of which is changed to 72-3 m2), and 64-3 m295 m2 (the above land is changed to 72-2 m2,000 m2) for AA Construction (hereinafter referred to as the “instant land”). The Plaintiff shall pay the purchase price to 10 m2,000 m2,000 m2,000 m2,000 m2,000 m2,000 m2,006.

2) On May 29, 2006, AA Construction paid to the Plaintiff KRW 200,00,000 as down payment, KRW 438,00,000 on June 15, 2006, and KRW 300,000 on July 27, 2006, and paid KRW 938,000,000 on a total amount equivalent to 10% of the purchase price. However, the Plaintiff did not pay the remaining sales amount by December 8, 2006, which is the remaining payment date. On January 11, 2007, the Plaintiff cancelled the sales contract of this case on the grounds of unpaid payment to A Construction.

B. Confirmation of related civil cases

1) In the case of Gwangju District Court 2008Gahap4294, May 6, 2008, which filed a claim against the plaintiff for the return or reduction of KRW 938,00,000, which was confiscated in accordance with the agreement on the penalty of this case. The court of first instance of the case rejected the claim for return of AA construction on November 13, 2008, and upon recognition of partial reduction of the claim for the reduction of penalty, the court of first instance rendered a judgment in favor of the plaintiff that "the plaintiff will return the amount of KRW 150,00,000 and its delay damages to A construction."

2) However, on September 4, 2009, the second island court (Seoul High Court 2008Na7528) rendered a judgment against AA construction that "the plaintiff (the defendant in the case in question) was revoked among the judgment of the first instance, and that "the claim for AA construction corresponding to the revoked part is dismissed" was dismissed, and the final appeal of the case in question (Supreme Court 2009Da78306) rendered a judgment against A construction against the court of final appeal on December 10, 209.

C. Defendant’s imposition of global income tax of this case

On January 11, 2007, the date of cancellation of the instant sales contract on February 5, 2010, the Defendant deemed the Plaintiff’s receipt date of penalty, which is other income. On May 31, 2008, the global income tax return deadline for global income tax was imposed on the Plaintiff, including penalty tax, on the ground that: (i) the global income tax amount of KRW 406,292,590,590 (=the global income tax of KRW 316,59,973 + the additional tax of KRW 31,469,83 + the additional tax of KRW 58,22,735, and the additional tax of KRW 10) was determined and notified.

D. The plaintiff's previous trial procedure

On February 23, 2010, the Plaintiff dissatisfied with the instant disposition and filed a petition for trial with the Tax Tribunal, and the said petition for trial was dismissed on April 30, 2010.

[Reasons for Recognition] Unsatisfy, Gap evidence 1 to 9, Eul evidence 1 and 2 (including each number), the purport of the whole pleadings

2. Whether the disposition is lawful;

A. The plaintiff's assertion

1) 491,139,000 won in difference between the market price where the instant land was not sold to a third party

(2) In light of the above legal principles, the Plaintiff’s property reduction occurred due to the cancellation of the instant sales contract, including the amount equivalent to KRW 8,888,861,000 as of September 25, 2008, and damages equivalent to KRW 1,500,000,000 in related civil cases, (i) the sales price of this case was KRW 9,380,000,000; and (ii) the amount of the instant penalty was paid to compensate the Plaintiff for the actual damages suffered by the Plaintiff; and (iii) the instant penalty was paid to compensate the Plaintiff for the damages exceeding the real damages, and thus, does not constitute “other income as money compensating for the damages exceeding the real damages.”

2) AA Construction filed a related civil lawsuit on May 6, 2008, which was prior to the filing deadline of the global income tax return of the instant case, and in light of the details of the dispute in the relevant civil case, on December 10, 2009, which was the final date of the judgment, shall be deemed the receipt date of other income. Therefore, it is unlawful that the Defendant deemed B on January 11, 2007 as the receipt date of other income.

3) If the time of receipt of other income is deemed to have been December 10, 2009, the time limit for filing a report is May 31, 2010, and thus, the Defendant’s imposition of penalty taxes in good faith is unlawful. Even if the year to which the income was reverted is deemed to have been 2007, there was a justifiable reason that the Plaintiff could not be found to be responsible for failing to perform his/her duty in light of the circumstances surrounding disputes, such

4) The Defendant calculated the tax base of KRW 937,99,925 at KRW 938,000 for penalty of this case, but did not properly include necessary expenses, such as real estate brokerage commission and attorney’s fees arising from the filing of a lawsuit by AA Construction.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) As to whether it constitutes other income

A) According to Article 21(1)10 of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009), penalty or compensation received due to a breach or termination of a contract shall be deemed other income. According to Article 41(3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890 of Feb. 28, 2007), the term “liability penalty or compensation” under Article 21(1)10 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890 of Feb. 28, 2007) means the value of money or other goods to compensate for damages exceeding the damages per se caused by a breach or termination of a contract, and in this case, if the value of money, etc. returned due to a breach or termination of a contract does not exceed the total amount paid initially under the contract, it shall not be deemed the value of money, etc. exceeding the damages per se

Article 41 (3) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890 of Feb. 28, 2007) refers to the active damage to the payment itself, which is the object of the contract, to the benefit itself. Therefore, the compensation for damages (e.g., the compensation for damages actually incurred) refers to the damage caused by the failure to obtain the increased amount of the property that would have been incurred if the contract was performed properly, and thus, the compensation for damages (e.g. the compensation for damages for damages) refers to the other income subject to taxation.

B) According to the facts found in Paragraph (1) above, AA Construction waived down payment under the condition that the down payment was received only in accordance with the instant contract for breach of contract, and according to the overall purport of Gap evidence 7, 8, 11, Eul evidence 3-1, and Eul evidence 3-5, the officially assessed land price of the instant land continues to increase since the date of the instant contract, the market price of the instant land is KRW 7,403,92,00, and the market price as of September 25, 2008 is KRW 8,88,861,00,000 (the market price as of September 25, 2008 is KRW 9,380,000,000 (the market price as at the time of the instant contract for breach of contract is equivalent to KRW 126%).

According to the above facts, the down payment that the buyer waived AA Construction shall belong to the plaintiff, who is the seller, and the plaintiff, the seller, has additionally obtained the money equivalent to the down payment without delivering the subject matter of sale, which is his/her duty, and since the market price of the land in this case has increased after the date of the contract, the plaintiff cannot be deemed to have suffered active damage to the payment itself due to the cancellation of the contract in this case. Rather, the damage equivalent to the difference in the market price claimed by the plaintiff is the damage caused by failure to obtain the performance profit that would have been accrued if the contract

In addition, even if the Plaintiff, after January 1, 2007, bears capital gains tax based on the actual transaction value, not based on the standard market price, and the increased amount of capital gains tax reaches KRW 1.5 billion, such estimated amount of capital gains tax cannot be deemed as active and practical damages that have arisen from the benefit itself.

Therefore, since the penalty of this case cannot be deemed as the damages paid by the plaintiff to compensate for the actual damages suffered by the plaintiff, the defendant's deeming it as other income is legitimate, and this part of the plaintiff's assertion is without merit.

2) As to the year to which the other income belongs

A) Article 50(1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 19890, Feb. 28, 2007) provides that the time when the receipt of the total amount of other income is made shall be “the date on which the receipt is made”.

The principle of confirmation of right, which is the principle of determining the timing of attribution of income under the Income Tax Act, is not the time when income is realized, but rather the time when the right occurs and the income of the year is calculated based on the premise that it will be realized in the future. However, the concept of "determination" in the principle of confirmation of right cannot be defined as the general principle that is not an exception to the time of attribution of income. In addition, the determination of the time of attribution should be made based on whether the income is considerably mature and finalized to the extent that there is a high possibility of realizing the income (see, e.g., Supreme Court Decisions 91Nu8180, Jun. 22, 1993; 2001Du809, Jul. 9, 2002).

B) At the time of the instant sales contract, the Plaintiff entered into an agreement for the instant penalty with the content that the buyer waives the full down payment, the Plaintiff received the down payment of KRW 938,000,000 from May 29, 2006 to July 27, 2006, and the Plaintiff agreed to pay the remainder of the sales contract until December 8, 2006, but did not pay it. However, the Plaintiff rescinded the instant sales contract on the ground that the remainder of the payment was unpaid on January 11, 2007, and the Defendant imposed the instant disposition on January 11, 2007 on the date when the income accrued.

According to the above facts, the penalty of this case was paid to the plaintiff on January 11, 2007, which is the date of the cancellation of the contract of this case, and even if AA Construction filed a civil lawsuit against the plaintiff on May 6, 2008, which is the day immediately before the time limit for filing the income tax (e.g., May 31, 2008), the plaintiff was receiving the contract deposit in full before the cancellation of the contract of this case and managing and controlling the income (the penalty). The amount of the penalty was determined as the total contract deposit, and the amount of the penalty was objectiveizing the income amount, and even if there is no possibility of reducing the amount of the penalty in the related civil procedure because the contract of this case constitutes the scheduled amount of compensation for damages, the part of the reduced penalty can be returned through the refund procedure. Thus, the defendant's right to receive income on January 11, 2007 is legitimate and the plaintiff's claim in this case is without merit.

3) As to whether the imposition of additional tax is illegal

A) As seen earlier, the year to which other income belongs cannot be deemed to be 2009, and thus, the Plaintiff’s allegation that this part of the penalty tax is unlawful is without merit.

B) We examine whether there was a justifiable reason for the Plaintiff to impose additional tax.

Under the tax law, where a taxpayer violates various obligations, such as a return and tax payment, without justifiable grounds, in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, an additional tax is imposed pursuant to individual tax-related Acts. Administrative sanctions imposed pursuant to such an administrative sanction may be deemed unreasonable for the taxpayer to have not been aware of his/her obligations, and thus, it may be exempted from imposition if there are justifiable grounds for not being able to cause a failure to perform his/her obligations, such as circumstances where it is unreasonable for the taxpayer to be reasonably present or to expect the performance of his/her obligations to the party concerned (see Supreme Court Decision 2003Du4089, Apr. 15, 2005).

In this case, the Plaintiff’s failure to perform its duty to report and pay income tax is not confirmed due to the institution of civil litigation related to AA Construction, and the Plaintiff sought to maintain the sales contract in this case upon receipt of the remainder payment from AA Construction to December 2007. However, the Plaintiff asserted that (i) the Plaintiff’s cancellation of the sales contract in this case on January 11, 2007 and the instant penalty was attributed to the Plaintiff on January 9, 2007; and (ii) the Plaintiff’s failure to perform its duty to pay the remainder payment until February 28, 2007; and (iii) the Plaintiff’s failure to report and pay the remainder payment from AA Construction to the Plaintiff on February 28, 2007 by modifying the sales contract to the effect that it was unreasonable for the Plaintiff to believe that the Plaintiff did not perform its duty to pay additional taxes by not later than 1.5 billion won, but the Plaintiff did not have any justifiable reason to believe that it did not have any duty to pay additional taxes after the amendment of the sales contract (No No. 5).171.

4) As to whether inclusion in necessary expenses is illegal

The brokerage commission is a necessary expense corresponding to the transfer income in the sale of real estate, and the litigation cost is not directly related to other income, so it is not necessary expenses under the Income Tax Act. Therefore, this part of the plaintiff's assertion is

3. Conclusion

Thus, the plaintiff's claim of this case is dismissed for reasons.