[1] In a lawsuit seeking revocation of a rejection disposition against a reduction request, whether individual illegal grounds, which are alleged to be erroneous, are merely an attack and defense as alleged to be justifiable (affirmative)

[2] Whether the legal evaluation of the causal relationship in which the income was derived should be lawful and effective in the case of taxable income (negative)

[1] Article 45-2 of the former Framework Act on National Taxes (Amended by Act No. 13552, Dec. 15, 2015) / [2] Article 45-2(2)5 of the former Framework Act on National Taxes (Amended by Act No. 13552, Dec. 15, 2015); Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 26946, Feb. 5, 2016)

[1] Supreme Court Decision 2002Du9261 decided Aug. 16, 2004 (Gong2004Ha, 1550) / [2] Supreme Court Decision 83Nu123 decided May 28, 1985 (Gong1985, 932)

Plaintiff 1 and four others (Law Firm Tae-Gyeong et al., Counsel for the plaintiff-appellant)

Sung-dong Tax Office et al. (Law Firm Jeong, Attorneys Jeon Jong-won et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2017Nu33413 decided August 16, 2017

The judgment below is reversed and the case is remanded to Seoul High Court.

1. Case summary

According to the reasoning and records of the lower judgment, the following facts are revealed.

A. The Plaintiffs repeatedly lent money to Nonparty 1 and Nonparty 2 (hereinafter “Nonindicted 1, etc.”) for the purpose of performing art business from the early 2008 police officer or from the early 2009 to the early 2011 by setting the maturity period of payment within three months and the interest rate of 10% as the necessary fund for performing art business. Of them, with respect to the money loaned until 2010, the Plaintiffs received payment of the principal and interest equivalent to 10% of the leased principal and interest from Nonparty 1, etc.

B. From May 29, 2012 to June 5, 2012, the Defendants imposed a disposition, such as global income tax for the year 2009 and 2010 on Plaintiff 1 in relation to the interest received by the Plaintiffs, and imposed a disposition, including global income tax for the year 2008 to 2010 on the rest of the Plaintiffs (hereinafter “the initial disposition”).

C. Accordingly, Plaintiff 1, 2, 4, and 5 filed a lawsuit against the head of Sungdong Tax Office, the head of the Gu-gu Tax Office, the head of the North Jeju District Tax Office, and the head of the Namwon Tax Office seeking revocation of the initial disposition. During each lawsuit, Plaintiff 1 expressed to Nonparty 1, etc. on June 12, 2013, and Plaintiff 2, Plaintiff 4, and Plaintiff 5 expressed that, on June 18, 2013, they would cancel each lease contract causing interest on the grounds of their deception, and that there is no interest income belonging to each of the pertinent taxable periods. However, each of the trials rendered a judgment against each of the plaintiffs on the grounds that there is insufficient evidence to acknowledge the deception by Nonparty 1, etc., and each of the judgments became final and conclusive both from December 11, 2014 to July 25, 2015 (hereinafter “each of the preceding final and conclusive judgments”).

D. Meanwhile, Nonparty 1, etc. was convicted of having been convicted of violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Fraud) for each of the following reasons: (a) in the course of borrowing money as a necessary fund for the art transaction business from early September 2008, and lending money to another loan, etc. under the so-called “commencing” method that pays the principal and interest of the existing loan, etc.; and (b) from September 201 to November 201, by deceiving Plaintiff 2, 3, 4, and 5, etc., and each judgment became final and conclusive.

E. On June 1, 2015, Plaintiff 1 expressed his/her intention to revoke each lease agreement on the grounds of his/her deception to Nonparty 1, etc. on May 21, 2015, and on June 12, 2015, Plaintiff 1 filed a request for correction against the Defendants for the initial disposition.

F. From June 29, 2015 to August 13, 2015, the Defendants rejected each of the Plaintiffs’ request for correction on the grounds of the existence, etc. of each of the preceding final and conclusive judgments in the instant case (hereinafter “instant refusal disposition”).

G. On March 22, 2016, the Plaintiffs filed the instant lawsuit against the Defendants seeking revocation of each of the instant rejection dispositions.

2. Determination ex officio as to each appeal by the head of Sungdong Tax Office, the head of Kudong District Tax Office, the head of Northern District Tax Office, and the head of Namwon Tax Office

A. Since the existence of res judicata effect of a final and conclusive judgment is a matter of ex officio investigation, the court may ex officio investigate and determine it, even without a party’s assertion (see, e.g., Supreme Court Decisions 89Meu2329, Oct. 23, 1990; 92Da3892, May 22, 1992). Meanwhile, as in a lawsuit seeking revocation of a tax disposition, a lawsuit seeking revocation of a rejection disposition against a request for reduction is also a ground for revocation of substantive and procedural illegality of the said refusal disposition. Thus, the subject of the said judgment is an objective existence of the tax base and tax amount on the tax base return. Thus, the individual illegal ground that the determination of tax base and tax amount is erroneous is merely an attack and defense method that asserts that the claim is justifiable (see Supreme Court Decision 2002Du9261, Aug. 16, 2004).

B. Examining the aforementioned facts in light of the aforementioned legal principles, the subject matter of each of the instant judgments and the subject matter of each of the instant lawsuits are identical to the objective existence of the tax base and tax amount of each interest income belonging to each of the instant taxable periods, and the revocation of each of the instant lending contracts on the grounds of deception by Nonparty 1, etc. is an attack defense method that had already been exercised prior to the closing of argument in each of the instant final judgments. Thus, the Plaintiffs asserted the revocation of each of the instant lending contracts on the grounds of deception by Nonparty 1, etc., and seek the revocation of each of the instant refusal dispositions against the said Defendants is not permissible as it contradicts the res judicata effect of each of the instant final judgments. Accordingly, the claim by the said Plaintiffs should be dismissed to render inconsistent judgments.

C. Nevertheless, the court below rejected each of the preceding final and conclusive judgments on the erroneous premise that the subject matter of the lawsuit in this case differs from the subject matter of the lawsuit in this case, and further affirmed the judgment of the court of first instance that dismissed the claim of the above plaintiffs. Such judgment of the court below is erroneous in the misapprehension of legal principles as to the res judicata in a lawsuit seeking revocation of the rejection of a claim for correction,

3. Ex officio determination on the appeal by the chief of the tax office against the defendant

A. Article 45-2(2)5 of the former Framework Act on National Taxes (amended by Act No. 13552, Dec. 15, 2015) and Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 26946, Feb. 5, 2016) provide that “Where a contract related to the validity of a transaction or act, etc., which served as the basis for calculating the tax base and the amount of tax, is rescinded by the exercise of the right of rescission or is cancelled or cancelled due to unavoidable reasons that occurred after the formation of the relevant contract” as one of the grounds for later filing a request for correction.

However, if taxable income is deemed to have a taxable capacity to control and manage the profit in reality from the economic aspect, it is sufficient to say that there is a taxable capacity to pay the income, and the legal assessment of the underlying relationship that led to the income should be lawful and effective (see Supreme Court Decision 83Nu123, May 28, 1985, etc.).

B. Based on the circumstances stated in its reasoning, the lower court determined that the part against Plaintiff 3 among the instant refusal dispositions on different premise is unlawful, since each interest income therefrom is no longer nonexistent due to the exercise of the right to revoke each lending contract between Plaintiff 3 and Nonparty 1, etc.

C. However, it is difficult to accept the above determination by the court below in light of the legal principles as seen earlier. Even if Plaintiff 3 lawfully revoked each lending contract on May 21, 2015 on the grounds of his deception to Nonparty 1, etc., if Nonparty 1 et al. did not return interest under each of the above lending contracts and held it as they are without returning it, the interest income for the year 2008 or 2010, which had the capacity to pay the above Plaintiff in economic respect, still exists. Therefore, the court below should have determined whether each of the interests received by the above Plaintiff 1 et al. were returned to Nonparty 1 et al., and then should have determined whether the above refusal disposition was unlawful.

Nevertheless, the lower court determined otherwise by misapprehending the legal doctrine on the existence of interest income, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment.

4. Conclusion

Therefore, without examining the Defendants’ grounds of appeal, the lower judgment is reversed ex officio, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ahn Jae-chul (Presiding Justice)