In order to obtain permission for changing land form and quality, where part of land is donated to a local government and the remainder is transferred, the standard of value of land to be deducted as improvement cost (=actual acquisition value)

Article 45 (1) 2 of the former Income Tax Act (amended by Act No. 4661 of Dec. 31, 1993) provides that "facility costs and improvement costs" shall be deducted as necessary expenses unless there are other circumstances, and "expenses" shall be the cost of resources sacrificeed to create profits. Thus, if the local government grants the land donated free of charge in the course of performing the burden on permission for change of the form and quality of the land, the acquisition value of the donated land shall be the cost actually disbursed for the increase of the value of the land.

Article 45 (1) 2 (see current Article 97 (1) 2) of the former Income Tax Act (amended by Act No. 4661 of December 31, 1993), Article 94 (2) (see current Article 163 (3)), and Article 163 (5) 1 (see current Article 163 (6) 1) of the former Income Tax Act (amended by Presidential Decree No. 14083 of December 31, 1993), Article 47 (1) 6 (see current Article 79 (1) 6) of the former Enforcement Decree of Income Tax Act (amended by Ordinance of the Prime Minister of the Prime Minister of May 3, 1995)

Supreme Court Decision 82Nu65 delivered on September 14, 1982 (Gong1982, 965) Supreme Court Decision 90Nu9360 Delivered on October 22, 1991 (Gong1991, 2855) Supreme Court Decision 96Nu1303 delivered on October 10, 197 (Gong1997Ha, 3512)

Plaintiff (Attorney O Chang-il et al., Counsel for the plaintiff-appellant)

Head of the Do Tax Office

Seoul High Court Decision 96Gu46615 delivered on September 25, 1997

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

The grounds of appeal are examined.

In the reasoning of the judgment below, the court below recognized the portion of the land in excess of 860 square meters before October 11, 1968 and owned 860 square meters before Dobong-gu Seoul ( Address 1 omitted), 682 square meters before May 19, 193 (hereinafter referred to as "land in this case") and 178 square meters before ( Address 2 omitted) of the original judgment (hereinafter referred to as "the address 2 omitted) as erroneous in writing; hereinafter referred to as "donation land". The land in this case was donated free of charge to Dobong-gu and transferred it to 3 others on the 20th of the same month on the 196th of the same month. The plaintiff recognized the acquisition value of the land in this case on June 29, 193 as the acquisition value of the land in this case and the acquisition value of the land in excess of 16th of 3th of the base market price, 36th of the acquisition value of the land in this case, and 16th of the value of the land after deducting the amount of 163.

In addition, the lower court determined that the value of the donated land to be deducted from the transfer value as the “facility cost and improvement cost” under Article 45(1)2 of the former Income Tax Act (amended by Act No. 4661, Dec. 31, 1993; hereinafter the same) where part of the land is granted to a local government without compensation for the change of land category and the land category is transferred where the remaining land is changed.

However, it is proper that "facility cost and improvement cost" under Article 45 (1) 2 of the Income Tax Act deducts expenses actually disbursed as necessary expenses unless there are other circumstances (see, e.g., Supreme Court Decision 90Nu9360, Oct. 22, 1991); and since the cost can be deemed as the cost of resources sacrificeed to create profits, if the plaintiff granted the land donated to Dobong-gu without compensation due to the performance of the burden on permission for changing the form and quality of the land in this case as determined by the court below, the acquisition value of the donated land constitutes improvement cost (see, e.g., Supreme Court Decisions 82Nu65, Sept. 14, 1982; 96Nu13033, Oct. 10, 197).

Nevertheless, the court below determined that the value of the donated land within the scope of the market price at the time of donation, which is deducted from the transfer value of the land in this case, shall be the facility cost and improvement cost. The court below erred in the misapprehension of legal principles as to the scope of the facility cost and improvement cost, which affected the conclusion of the judgment. Accordingly, the court below accepted the allegation in the grounds of appeal pointing this out.

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Jong-sik (Presiding Justice)