[1] In a case where a processed claim that had not existed from the beginning is appropriated and extinguished, whether the inclusion in deductible expenses under the Corporate Tax Act can be deemed as a bad debt that is allowed (negative)

[2] In case where the business year of accrual comes to a different business year from the original business year by including the losses or earnings accrued from the previous business year in accordance with the corporate accounting standards, the period of accrual

[1] Bad debt under the Corporate Tax Act refers to a claim which cannot be recovered among corporate bonds, which is legally extinguished or which cannot be recovered in light of the debtor's asset situation, payment ability, etc. even if the claim has not been legally extinguished. Thus, it cannot be deemed as a bad debt which is allowed to be included in deductible expenses under the Corporate Tax Act, on the ground that a processed claim that did not exist from the beginning and a recognized interest on such claim is immediate in accordance with corporate accounting.

[2] The period of accrual of earnings and losses under the Corporate Tax Act shall, in principle, be applied to the principle of confirmation of rights and duties, but where there are other corporate accounting standards or practices, they shall be applied preferentially. However, where the business year of accrual comes to fall differently from the business year of accrual of losses or losses by including the profits and losses from the previous business year in deductible expenses or gross income in accordance with the corporate accounting standards, the business year in which the date of confirmation of the concerned earnings and losses falls shall be

[1] Article 9 (3) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998) (see Article 19 (1) of the current Corporate Tax Act) Article 12 (2) 8 of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 15970 of Dec. 31, 1998) Article 21 (see Article 62 of the current Enforcement Decree) Article 9 (2) of the former Enforcement Rule of the Corporate Tax Act (amended by Ordinance of the Ministry of Finance and Economy No. 86 of May 24, 1999), Article 62 (1) of the current Enforcement Decree of the Corporate Tax Act (see Article 62 (1) of the current Enforcement Decree of the Corporate Tax Act) / [2] Article 17 (1) (see Article 40 (1) of the current Enforcement Decree of the Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998)

Pyeongtaek Textiles Industrial Co., Ltd. (Attorney Jeong Sung-sung et al., Counsel for defendant-appellant)

Head of Eastern Tax Office

Seoul High Court Decision 2002Nu2606 delivered on June 3, 2003

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

1. Regarding ground of appeal No. 1

According to the reasoning of the judgment below, the court below acknowledged the facts as stated in its holding. The plaintiff's provisional payment and recognized interest claims against the non-party 1 and the non-party 2 stated on the account book were confirmed as processed bonds by the judgment of confirmation of the existence of obligations owed by the Seoul District Court branch on September 15, 1995, and thus, it was unlawful for the defendant to dispose of the amount of claims in the account book and as bad debts in the business year 198, but it was unlawful for the non-deductible debts to be collected in deductible expenses. Thus, the court below determined that the non-party 1 and the non-party 2's non-party 9's non-party 9's non-party 2's non-party 9's non-party 9's non-party 9's non-party 1 and the non-party 2's non-party 1's non-party 1's non-party 1's non-party 1's non-party 9's non-party 2's non-party 9's non-party 9's non-party 9's claim.

In light of the relevant laws and records, the above recognition and judgment of the court below is just, and there is no error of law such as misunderstanding of legal principles as to bad debts under the Corporate Tax Act or violation of the rules of evidence.

The Supreme Court Decision cited in the ground of appeal by the Plaintiff is inappropriate to be invoked in the instant case, since it differs from the matter.

2. Regarding ground of appeal No. 2

According to Article 17 (1) of the former Corporate Tax Act (amended by Act No. 5581 of Dec. 28, 1998; hereinafter referred to as the "Act"), the period to which profits and losses accrue shall be the business year which includes the date on which the profits and losses accrue. Article 17 (3) of the same Act provides that where corporate accounting standards or practices generally recognized as fair and reasonable exist, they shall take precedence over the provisions of the Act; however, Article 36 (1) of the Enforcement Decree provides that exceptions shall be prescribed by the Presidential Decree; and Article 37-2 (1) 5 of the Enforcement Decree provides that where corporate accounting standards are excluded pursuant to Article 17 of the Act, the period to which profits and losses accrue shall accrue shall be included in deductible expenses or losses for the business year in which the date of accrual of profits and losses falls under the business year in which the profits and losses accrue, which is different from the date of accrual of profits and losses pursuant to the former Corporate Tax Act. In light of such purport, if profits and losses accrue in the business year in question are determined differently from the business year.

In the same purport, the court below held that the provisional payment of this case against the non-party 1 and the non-party 2 and the non-party 2 shall not be included in the deductible expenses for the business year 1998 even if they were disposed of as losses for electrical error revision, and among them, the provisional payment shall be included in the deductible expenses for the business year 1980 when calculating the tax base for the business year 1980, and the amount equivalent to the interest recognized from 1980 to 1990 for the provisional payment shall be included in the gross income for each business year when it is appropriated as the bonds, and there is no error in the misapprehension of legal principles as to the profits and losses for electrical error revision, as otherwise alleged in the ground of appeal.

3. 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 Yoon Jae-sik (Presiding Justice)