Kim Jong-sung (Attorney Bae-won et al., Counsel for the plaintiff-appellant)

Head of North Daegu Tax Office

June 19, 1991

The plaintiff's claim is dismissed.

Litigation costs shall be borne by the plaintiff.

The Defendant’s disposition of imposition of KRW 13,802,570 of global income tax for the year 1987 against the Plaintiff on July 18, 1989 and KRW 2,760,510 of its defense tax shall be revoked.

1. Details of taxation; and

In full view of the statements in Gap evidence 1 through 4, evidence Nos. 6 through 8 (the evidence No. 7, evidence No. 8 shall be the evidence No. 13-2, evidence No. 14-2, evidence No. 14-2, evidence No. 11-4, 5, evidence No. 1-1, evidence No. 1-2, evidence No. 15-2, evidence No. 15-3, each of the statements in evidence No. 15-2, and evidence No. 16-3, which are acknowledged to have been established by the testimony of the witness, and the whole purport of the pleading in the testimony of the above witness, the following facts may be acknowledged, and no other counter-proof evidence exists:

(1) On March 11, 1983, the Plaintiff purchased a low-income apartment with 200 households and one commercial building (hereinafter referred to as the apartment of this case, which was newly constructed on the ground on the ground of 603, 1983, the apartment of this case. At that time, the structural construction was conducted about 70% at the time) and its site (hereinafter referred to as the site of this case) from 770,00,000 won, and tried to engage in the housing construction project. However, although the housing construction was not registered under its own name, the Plaintiff was to construct and sell the apartment of this case with its own responsibility and calculation under the name of the business operator of the non-party company, and the non-party company after the completion of the apartment of this case was to pay 20,000,000 won to the non-party company under its name, and the housing construction project of this case was conducted under the name of the non-party company as a loan of this case 40,000 won and the housing construction project of this case was conducted under the title of this case 90.

(2) On February 27, 1985, the plaintiff filed a claim for the procedure of ownership transfer registration against the non-party company for the claim for the cancellation of title trust on the site of this case and the claim for ownership confirmation against the apartment of this case and received a judgment in favor of the plaintiff from the Daegu District Court on February 25, 1986. Accordingly, the non-party Sejong District Court appealed against the defendant as the defendant joining the lawsuit, but the non-party Sejong District Court appealed against the defendant joining the lawsuit. On September 2, 1986, the judgment in favor of the plaintiff on the dismissal of the appeal was sentenced by the Supreme Court on December 13, 198, and the above judgment of the first instance became final and conclusive.

(3) Meanwhile, the Korea Housing and Commercial Bank paid the interest interest of the loan of this case in the name of the non-party company and did not pay the interest interest after the plaintiff filed a lawsuit against the non-party company. On March 25, 1986, the plaintiff filed a request for auction on the site of this case for the collection of the loan. On June 18, 1986, the plaintiff was awarded the land of this case in the name of the non-party Hong iron Co., Ltd., and again provided the land of this case to the Korea Housing and Commercial Bank as collateral for the loan of this case in the name of the non-party company and the debt for the payment of the interest interest amount of the loan of this case. The debtor provided the land of this case to the non-party company and the maximum debt amount of the loan amount of this case to KRW 1,100,000,000 and completed the registration of the ownership transfer in its name on March 9, 1987, registered the housing construction company's name as the plaintiff, and completed the construction work of this case to the non-party 3.

(4) Since May 31, 198, the Plaintiff filed a final return on the tax base of global income tax in 1987, and reported the total amount of income to KRW 1,303,760,000 for sales revenue of the 135 households of the instant apartment, and necessary expenses from October 23, 1987 to December 31, 1987 for the instant loan from March 9, 1986 to December 31, 1987, with interest interest of KRW 1,412,61,920 for the sum of KRW 167,694,846 for overdue interest, and KRW 851,920 for global income to KRW 108,851,920 for global income.

(5) As to this, the Defendant collected the Plaintiff’s tax base based on the Plaintiff’s on-site investigation, and added 5,20,000 won to the revenue of commercial building sales. Of the amount appropriated as necessary expenses, the amount of KRW 116,632,049 for the loan of this case from March 9, 1986 to April 30, 1987 should be the interest rate of KRW 116,632,049 for the loan of this case from March 9, 1987. The Plaintiff assessed 76,085,875 for the reason that the land purchase cost would have arisen before the Plaintiff’s business registration date, KRW 4,20,00 for the purchase cost of land unrelated to the Plaintiff’s housing construction project, KRW 30,00 for the total amount of KRW 10,00,000 and KRW 200 for the tax base of KRW 97,300,000 for each tax base of KRW 970,300,500.

(6) However, upon the Plaintiff’s request for a national tax appeal, the Plaintiff’s determination that the Defendant’s interest in the instant loan from January 1, 1987 to April 30, 1987 should be recognized as necessary expenses on the ground that the overdue interest in the period from April 30, 1987 to April 30 of the same year was overdue interest, and accordingly, the Defendant issued a decision of correction as indicated in the attached Form of Tax Payment Statement and issued a written notice of reduction to the Plaintiff on May 31, 190, imposing global income tax equivalent to the amount stated in the purport of the claim and its defense tax, and thus, the amount of tax imposed by the instant taxation was reduced as corrected tax amount.

2. Whether the instant taxation disposition is lawful

We examine the Plaintiff’s assertion in turn by examining the legitimacy of the instant taxation disposition.

(1) Determination on the application of Article 31(2) of the Income Tax Act

First, the plaintiff asserts that the taxation disposition of this case, which is calculated by treating the interest rate from March 9, 1986 to December 31, 1986 on the loan of this case paid by the plaintiff (hereinafter referred to as the interest rate in 1986) shall be deemed as the necessary expenses for the year 1987 under Article 31 (2) of the Income Tax Act, is unlawful, and that the interest rate in the year 1986 is the interest rate for the loan of this case directly used for the construction project of this case. (A) Since the interest rate in the year 1986 is the interest rate in the apartment house of this case used for the construction project of this case, the cost corresponding to the apartment house revenue in 1987 is the interest rate in the year 1987. (B) Since the non-party company entrusted with the name of the housing construction project owner and the interest rate in the second judgment before the construction project owner cannot exercise its right as the owner before the year 198.6.

Therefore, first of all, Article 31 (1) of the Income Tax Act provides that the amount to be included in the necessary expenses shall be included in the calculation of the income amount of the business year concerned, and Article 31 (2) of the same Act provides that the expenses corresponding to the total income amount of the business year concerned shall be included in the aggregate of the expenses corresponding to the total income amount of the year concerned, and Article 60 of the Enforcement Decree of the same Act provides that the necessary expenses corresponding to the total income amount of the business year concerned, which is finalized in the year concerned, shall not be included in the necessary expenses before the year concerned, shall be considered as the necessary expenses of the year concerned, and Article 60 of the Enforcement Decree of the same Act provides that the necessary expenses corresponding to the total income amount of the business year concerned shall be prescribed in the following subparagraphs. Article 31 (1) of the Income Tax Act provides that the interest paid to the debts used directly in order to obtain the total income amount in the year concerned shall be included in the calculation of the income amount of the year concerned, and Article 51 of the same Act provides that the former income amount shall be included in the expenses within the year concerned.

The plaintiff was engaged in the housing construction business from March 11, 1983 with the name of the non-party company's business operator as seen above. The loan also borrowed the land of this case which it actually owned under the name of the non-party company as collateral, and the overdue interest was paid to the non-party company. The non-party company filed an appeal against the plaintiff's judgment in favor of the court of first instance against the non-party company, and the non-party company did not appeal against the non-party company. The second judgment of the court of first instance was sentenced in 1986 as well as the second judgment of the appeal of this case to the non-party 1. The plaintiff is already awarded the land of this case to the non-party company in the name of Hong 18, 1983, and the overdue interest of this case is the 196th judgment of the court of first instance as necessary expenses for the construction of the non-party company and the 19th judgment to the non-party company's own interest of this case before the 198th judgment of this year.

In addition, Article 7 (1) of the Income Tax Act provides that in cases where the ownership of income is nominal and there is a person who has actually earned such income, income tax shall be imposed on the person who has actually earned such income pursuant to Article 14 (1) of the Framework Act on National Taxes, thereby declaring the principle of substantial taxation by prescribing that this Act shall not apply to the income accruing from the business prescribed by the Presidential Decree, and accordingly, Article 21 of the Enforcement Decree of the same Act provides that the term “business prescribed by the Presidential Decree” in the proviso of Article 7 (1) of the same Act refers to the business falling under any of the following subparagraphs. Article 7 (1) 1 provides that a person who has obtained a license under the Construction Business Act provides for a construction business; the above provision provides that the actual constructor who carries out construction business by lending the name of the person who has actually carried out the construction business is a small-scale construction business and has no capacity to pay taxes on the apartment construction business (see Article 14 (1) of the Enforcement Decree of the Housing Construction Business Act). It does not provide that the principle of substantial taxation can be imposed on the person who has been imposed taxes on the owner.

(2) Determination on the application of Article 58(2) of the Income Tax Act

Furthermore, even if the interest rate in the year 1986 was determined in 1986, the amount equivalent to the interest rate was determined in the year 1986 because there was no income from the construction project of the apartment of this case. Although it was not determined by the authorities on the losses in the year 1986, it was not possible to make a global income tax return in the name of the plaintiff due to the relationship that the plaintiff borrowed the name of the non-party company and operated the housing construction project, and the non-party company could not exercise its rights as the owner as well as the non-party company's owner due to the cancellation of the housing project license for the non-party company on October 31, 1985. Thus, it was inevitable to make a tax return in the name of the non-party company due to the cancellation of the non-party company's housing project license. Thus, it was recognized that the losses in the year 1986 were not deducted in the calculation of the income amount for that year, such losses should be viewed as necessary expenses for the plaintiff's losses in the year 1987.

Therefore, Article 58 (1) of the Income Tax Act (amended by Act No. 4019, Dec. 26, 198; hereinafter the same applies) provides that losses arising from each type of income in calculating the income by the business owner's account book for the corresponding year shall be included in the calculation of the corresponding global income. Paragraph (2) provides that losses shall not be deducted in calculating the income amount by type of income within three years from the first day of each year under the conditions as prescribed by the Presidential Decree among losses by type of income in paragraph (1) that were generated within the corresponding year without deduction. Article 113 (1) of the Enforcement Decree of the Housing Construction Promotion Act provides that such losses shall not be deducted from the calculation of the corresponding year's income amount by type of income. Since it is difficult for the plaintiff to view that the tax base of the housing project was not carried over by the non-party 2 as the grounds for the cancellation of the tax base return on the corresponding year's taxation without the law, such losses shall not be included in the calculation of the corresponding global income amount.

3. Conclusion

Ultimately, since the defendant's decision of reduction is legitimate, the plaintiff's claim of this case seeking revocation is dismissed as it is without merit, and the costs of lawsuit are assessed against the plaintiff who lost.

July 24, 1991

Judges Song Jin-hun (Presiding Judge)

[Attachment Form Omission (Tax Invoice)]