The meaning of "one general house transferred for the first time after return to rural communities", which is a non-taxation requirement for capital gains tax under Article 155 (11) of the Enforcement Decree of the former Income Tax

The purpose of Article 155(11) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18173, Dec. 30, 2003) is to: (a) in cases where one household that has owned one rural or fishing village and one general house transfers the general house, and is subject to the non-taxation pursuant to Article 155(7) of the same Act, and thereafter acquires another general house and subsequently transfers it again, it is against the purport of the same Article to continue to impose non-taxation by applying Article 155(7) of the same Act; (b) in such cases, the above paragraph (7) does not apply; and (c) in such cases, it appears that one of the houses that are transferred after the return to rural, would be exempt from non-taxation; and (d) in light of this, “one general house first transferred after the return to rural,” as provided for in Article 155(11) of the same Act, means a case where one and one house are non-taxation and transfers the general house under the first conditions of non-taxation.

Article 89 subparagraph 3 of the former Income Tax Act (amended by Act No. 6781 of Dec. 18, 2002); Article 155 (7) and (11) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18173 of Dec. 30, 2003)

Plaintiff

The Director of the National Tax Service

Daejeon High Court Decision 2004Nu662 delivered on August 27, 2004

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

Article 155(7) of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 18173, Dec. 30, 2003; hereinafter “Enforcement Decree”) provides that the main sentence of Article 155(7) provides that where one household owns one house and another house (hereinafter “ordinary house”) respectively for the purpose of maintaining demand for rural and fishing villages and promoting renovation of rural and fishing villages by facilitating exchanges between rural and rural communities, transfer of ordinary house shall not be subject to capital gains tax by deeming that it owns one house and that it owns one house, and subparagraph 3 provides that Article 15(7) of the former Enforcement Decree of the Income Tax Act provides that a household acquires a house of return to rural and fishing village for the purpose of farming as one of the houses prescribed in the main sentence of subparagraph 3, and Article 155(7) provides that the main sentence of Article 155(7) shall apply only to one ordinary house first transferred after return to rural and fishing village.

The purport of Article 15(11) of the above Act is to: (a) in a case where one household which has owned one agricultural and fishing village and one general house, transfers the general house, and thereafter acquires and transfers another general house again after being exempted from taxation pursuant to Article 15(7) of the above Act is in violation of the purport of the above provision; (b) in such a case, continuing to apply Article 15(7) of the above provision is contrary to the above provision, and thus, (c) in such a case, the household would not be subject to Article 155(11) of the above Act and give non-taxation benefits to only one general house among the houses transferred after the return. Considering this, the "one general house first transferred after the return to rural area" under Article 155(11) of the above Act means a case where one general house and one house of return to rural area are owned without satisfying the requirements for non-taxation after the return to rural area are transferred for the first time while meeting the requirements for non-taxation under paragraph (7) of the above.

The court below held that the plaintiff's transfer of one general house which meets the requirements for non-taxation under Article 155 (7) of the Enforcement Decree and one other general house is transferred under the status of three houses for one household, and that it does not meet the requirements for non-taxation under the above paragraph (7). Thus, it does not fall under the "one general house first transferred after the return to the farm." At the time of the transfer of this case, the plaintiff owned one general house and one house for one return to the farm and transferred one general house under the conditions for non-taxation under the above paragraph (7). Since he did not receive the previous non-taxation benefits, the court below held that the plaintiff's transfer of this case constitutes "one general house first transferred after the return to the farm," under the above paragraph (11) and thus, it constitutes "one general house subject to non-taxation under the above legal principles." There is no violation of law by misunderstanding the legal principles as to Article 155 (7) and (11) of the Enforcement Decree, as otherwise alleged in the ground of appeal.

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

Justices Park Si-hwan (Presiding Justice)