In a case where the land was sold in which the cultivation of the land was suspended due to the land development project under the land readjustment project, and the land was not used as farmland, the case holding that Article 66 (4) and (5) of the former Enforcement Decree of the Restriction of Special Taxation Act, which stipulates the “farmland as of the commencement date of land development project” as the date of transfer, cannot be deemed as “farmland as of the transfer date,” on the ground that the said land cannot be deemed as “farmland as of the transfer date,”

Article 69(1) of the former Restriction of Special Taxation Act (amended by Act No. 7003 of Dec. 30, 2003); Article 66(4) and (5) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 18176 of Dec. 30, 2003)

Plaintiff (Law Firm Daegu General Law Office, Attorney Park Jin-jin, Counsel for the plaintiff-appellant)

Head of Namgu Tax Office

Daegu High Court Decision 2006Nu287 decided July 14, 2006

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. According to Article 69(1) of the former Restriction of Special Taxation Act (amended by Act No. 7003, Dec. 30, 2003; hereinafter the “Act”), Article 66(3) and (4) of the former Enforcement Decree of the Restriction of Special Taxation Act (amended by Presidential Decree No. 18176, Dec. 30, 2003; hereinafter the “Enforcement Decree”), where a land reserved for replotting, other than farmland, has been cultivated for at least eight years from the time of acquisition by a person residing in a location of farmland to the time of transfer, is designated as a land reserved for replotting, the farmland for which three years have not elapsed from the date of such designation, which is the one eligible for reduction or exemption of capital gains tax, and the farmland subject to the above reduction or exemption provisions, as of the date of transfer, shall be based on the current farmland as at the date of the designation of the land reserved for replotting, but where the relevant farmland was designated before the date of such designation, and construction works for development of the land reserved for replotting after three years have elapsed.

In full view of the adopted evidence, the court below acknowledged the fact that the plaintiff acquired the land in this case at the time of the original adjudication on August 18, 1987 and cultivated it as discussed. The land in this case was incorporated into the above project site according to the establishment of the land zone 1 district rearrangement association and the project implementation authorization on September 23, 1996 by the Daegu Metropolitan City Mayor on September 23, 1996, and the land rearrangement project was delayed due to the bankruptcy of the International Comprehensive Land Corporation Co., Ltd. (hereinafter referred to as the "International Land Corporation") in charge of the construction, and did not issue a land substitution plan designation disposition on July 13, 2005. The plaintiff did not issue a land substitution plan designation disposition on November 15, 2003 under the above authorization, and determined that the land in this case which was not used as farmland due to the above land development project to non-party 1 and 2, even if the land was not subject to the land substitution plan as of September 6, 2003.

In light of the above relevant laws and records, the above judgment below is just and acceptable, and there is no error in the misapprehension of legal principles as to Article 66 (3) and (4) of the Enforcement Decree, as otherwise alleged in the ground of appeal by the plaintiff.

2. Land, the public record category of which is farmland but not actually cultivated as of the date of transfer, shall not be deemed farmland as of the date of transfer, unless it is in a state of temporary suspension, regardless of whether it is by the landowner’s own or by another person, and thus, it does not constitute land subject to non-taxation of capital gains tax (see Supreme Court Decision 91Nu7422 delivered on November 12, 191).

According to the reasoning of the judgment of the court below, while the plaintiff acquired the land of this case on August 18, 1987 and cultivated as a rice field, the land of this case was incorporated into the site of the Geumpo District Land Readjustment Project, which was approved and implemented as of September 23, 1996 for the creation of housing lots, and the land of this case was transferred in such a state that it cannot be cultivated due to the construction work of the international comprehensive land formation project implemented as of September 23, 1996. Thus, the land of this case cannot be deemed as farmland as of the date of transfer, and therefore it does not constitute land subject to reduction of capital gains tax, unless there are special circumstances.

The judgment of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to the point of time of determining farmland as of the transfer date as the requirement of capital gains tax reduction.

3. Conclusion

Therefore, the appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Ji-hyung (Presiding Justice)