In a case where a house corresponding to one house for one household has been transferred after two years have elapsed since the house was transferred by expropriation, whether it can be deemed as a land annexed to one house for one household subject to non-taxation of capital gains tax (negative)

Article 89 (1) 3 of the former Income Tax Act (amended by Act No. 9346 of Jan. 30, 2009); Article 154 (1) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 21301 of Feb. 4, 2009); Article 72 (2) of the former Enforcement Rule of the Income Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 71 of Apr. 14, 2009)

[Judgment of the court below]

Director of the District Office

Seoul High Court Decision 2012Nu30044 decided May 15, 2013

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

According to the former Income Tax Act (amended by Act No. 9346 of Jan. 30, 2009; hereinafter referred to as the "Act"), its Enforcement Decree (amended by Presidential Decree No. 21301 of Feb. 4, 2009; hereinafter referred to as the "Enforcement Decree"), the Enforcement Rule (amended by Ordinance No. 71 of Apr. 14, 2009; hereinafter referred to as the "Enforcement Rule") and the Enforcement Rule of the Income Tax Act (amended by Ordinance No. 71 of the Ministry of Strategy and Finance of Apr. 14, 2009), where part of the house and appurtenant land are expropriated under the Act on the Acquisition of Land, etc. for Public Works and the Compensation Therefor, the land of the transferred portion shall not be deemed land annexed to one house for one household: Provided, That if the relevant house and appurtenant land are expropriated under the Act on the Acquisition of Land, etc. for Public Works and the Compensation Therefor, the remaining land and remaining appurtenant land (including appurtenant land) transferred within two years shall not be deemed to be included in one house for one household (Article 89(1).

In light of the structure and contents of the above statutory provisions, the principle of strict interpretation of the tax statutes, and the principle of non-taxation of capital gains tax on one house for one household, etc., even if a house corresponding to one house for one household was transferred by expropriation, in cases where a appurtenant land was transferred after two years have elapsed since such expropriation, it cannot be deemed that it constitutes land annexed to one house for one household subject to non-taxation of capital gains tax regardless of whether there was any inevitable reason for not being transferred within two years.

According to the reasoning of the judgment below, it is apparent that the instant land was transferred after two or more years have elapsed from the time of the expropriation of the instant land. Therefore, contrary to the allegations in the grounds of appeal, even if the instant land was designated as an urban planning project area at the time and the development activities and building permission were restricted, and there was a de facto reason for restriction on disposal of such land, so long as the time of transfer was more than two years after the date of expropriation of the housing, it cannot be deemed as a land appurtenant to the housing already transferred, which constitutes a non-taxation

Although it is inappropriate that the court below cited the proviso of Article 154 (1) 2 (a) of the Enforcement Decree, which provides for exceptions to the restriction of retention period and residence period, based on the statutory grounds that the transfer of land in this case does not constitute a non-taxable object of capital gains tax, it is justified in the conclusion that the transfer income tax is subject to capital gains tax. The court below did not err by misapprehending the legal principles that affected the conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Chang-suk (Presiding Justice)