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

The grounds of appeal are examined.

1. Article 97(1)2 of the former Income Tax Act (amended by Act No. 14389, Dec. 20, 2016) cited “capital expenditure, etc. prescribed by Presidential Decree” as one of the necessary expenses to be deducted from the transfer value when calculating the gains on transfer of a resident.

According to delegation, Article 163(3)2 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015; hereinafter the same) provides that “capital expenditure, etc. shall be deemed as constituting “capital expenditure, etc.” and “in the event a lawsuit is instituted after the acquisition of the transferred asset, the amount of the cost of lawsuit, reconciliation expense, etc. directly required to secure ownership, excluding those included in necessary expenses in calculating the income amount of the year of payment

However, Article 163(3)2 of the Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 26067, Feb. 3, 2015) provides for “where land, etc. is purchased by consultation or expropriated pursuant to the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects or other Acts and subordinate statutes, the cost of lawsuit directly required in connection with the increase of compensation” as one of the capital expenditure among necessary expenses.

Transfer income tax is levied on the assumption that assets are transferred and income accrued therefrom.

In order to determine income from the transfer of assets, expenses incurred in the acquisition, holding, and transfer of assets shall be deducted from the price of assets transferred.

Before the amendment of the above Enforcement Decree, the necessary expenses deductible from the transfer value are stipulated as “the amount of litigation costs, reconciliation costs, etc. directly required to secure ownership in the event a dispute arises after acquiring the transferred assets.” However, if a dispute arises after acquiring the transferred assets, the litigation costs, etc. required to possess the assets are to be recognized as necessary expenses.

Any purchase by consultation or expropriation of land, etc.