[1] The meaning of and criteria for determining "ewards" under Article 21 (1) 17 of the former Income Tax Act as one of other income

[2] In a case where Party B, the chief executive officer of Party A, agreed to transfer the right to operate a high school of Party A to Party B by taking over the status of Party B’s president, and received compensation from Party B, and the tax authority imposed global income tax on Party B, the case holding that the above compensation constitutes a honorarium, but the amount equivalent to the non-approval debt incurred in the management of the school does not constitute a honorarium

[1] Article 21 (1) 17 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) as one of the other incomes refers to money and valuables provided as the meaning of a case in relation to administrative affairs or provision of service. Whether it is a case should be determined by comprehensively considering the motive and purpose of receiving the pertinent money and valuables, relationship with the other party, amount, etc.

[2] The case holding that in a case where the tax authority imposed global income tax on Eul by making an agreement on the change of executive officers to transfer the right to operate the fixed high school of Eul corporation Eul, the chief executive officer of Gap school corporation Eul, to transfer the status of the president of Eul corporation Eul and Eul corporation Eul corporation, and the tax authority imposed global income tax on Eul, the case holding that the above compensation is paid to Eul as the case where Byung church was paid to Eul for the procedure to obtain the actual operator status of Eul corporation, such as Gap corporation's chief executive officer status, and it does not constitute a "reward" under Article 21 (1) 17 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005), but not for the amount equivalent to the unapproved debt that is required for management of the above school corporation Eul among the above compensation, but for the reason that it was entrusted to Byung or received from Byung church through an officer change agreement, and it does not constitute an honorarium subject to actual taxation under the principle.

[1] Article 21 (1) 17 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005) / [2] Article 21 (1) 17 and (2), and Article 27 (1) of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005)

[1] Supreme Court Decision 97Nu20304 delivered on January 15, 1999 (Gong1992, 309)

Plaintiff (Law Firm Jeon, Attorneys Lee Gyeong-Gyeong et al., Counsel for the plaintiff-appellant)

The director of the tax office.

Seoul High Court Decision 2009Nu33135 decided October 28, 2010

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

The grounds of appeal are examined.

1. Grounds of appeal as to whether the case constitutes an honorarium

A. Article 21 (1) 17 of the former Income Tax Act (amended by Act No. 7837 of Dec. 31, 2005; hereinafter the same) provides that "a honorarium" as one of other income means money and valuables provided for the purpose of a case in connection with administrative affairs or provision of service, etc., and whether it constitutes this shall be determined by comprehensively taking into account the motive and purpose of receiving the relevant money and valuables, relationship with the other party, amount, etc. (see Supreme Court Decision 97Nu20304 delivered on Jan. 15, 199).

B. Based on the adopted evidence, the court below acknowledged that the Plaintiff, the chief executive officer of the ○○ Private School (hereinafter “○○ Private School”) under the Private School Act, was given an agreement to transfer the operating right on July 9, 2004 to the △△△△ High School (hereinafter “△△ High School”), △△△ (hereinafter “△△”) in the manner of ensuring the status of the chief executive officer of the ○○ Private School on July 9, 2004, and accordingly, determined that the Plaintiff’s act as the chief executive officer of the ○○ Private School on September 16, 2004 and the Nonparty, the representative of the △△ Private School, was on office with the chief executive officer, and that the Plaintiff was paid 6,99,90,000 (hereinafter “instant compensation”) from the △△ Private School under the instant agreement on the change of executive officer, and that the Plaintiff was entitled to receive compensation from the △△△ Private School’s principal officer’s actual status as the principal executive officer’s right to restructuring.

C. In light of the aforementioned legal principles and records, the above determination by the court below is just, and there is no error in the misapprehension of the principle of no taxation without law by expanding the meaning of “ewards” under Article 21(1)17 of the former Income Tax Act.

2. Grounds of appeal as to the person to whom compensation belongs and subrogation

A. Based on the circumstances indicated in the judgment below, the court below held that: (a) the instant agreement on the change of executive officers was concluded not only in the position of the president, who is the representative of the ○○ Private Teaching Institute, but also in the capacity of an individual; and (b) the instant compensation paid pursuant to such change agreement was paid to the Plaintiff, who is not the ○○ Private Teaching Institute, due to the Plaintiff’s procedure for taking into account the actual status of the operator of the school, such as the status of the president of the ○○ Private Teaching Institute; (c) the compensation should be deemed to belong to the Plaintiff, not the ○ Private Teaching Institute; and (d) the Seoul District Office of Education ordered the Plaintiff to repay KRW 2,702,262,894 embezzled from the ○ Private Teaching Institute after the conclusion of the instant change agreement; and (e) the △△△ Group deposited it into the ○ Private Teaching Institute, instead of paying the Plaintiff KRW 2,02,262,894, the remaining amount of the compensation paid to the Plaintiff.

B. In light of the relevant legal principles and the facts acknowledged by the court below, based on the agreement on the change of executive officers of this case, 1,143,765,200 won, out of the instant compensation reverted to the Plaintiff under the change agreement on September 21, 2004, was deposited into ○○ Private School instead of directly paying to the Plaintiff, and even if the Plaintiff did not directly receive KRW 1,143,765,200 from △△△△ Foundation, ○○○ Private School, ○○○○○○○○○ Foundation’s profit was derived from 1,143,765,200 won, △△△△△△△△△ Foundation’s exemption from the payment of damages liability amounting to KRW 1,143,765,200, which is reverted to the Plaintiff. Thus, even if △△△△△△△△△△△ Foundation deposited the amount of money corresponding to the amount of 1,143,765,200 won into ○○○.

C. Therefore, the above determination by the court below is just, and there is no error by violating the principle of substantial taxation.

3. Grounds of appeal as to the deduction of necessary expenses or donations

A. Article 21(2) of the former Income Tax Act provides, “The amount of other income shall be the amount obtained by deducting the necessary expenses required therefor from the total amount of income of the year concerned” and Article 27(1) of the same Act provides, “The amount to be included in the necessary expenses in the calculation of the amount of other income, etc. shall be the total amount corresponding to the total amount of income of

B. The lower court rejected the Plaintiff’s claim on the deduction of necessary expenses, etc. on the ground that the Plaintiff’s expenses incurred in establishing the Docdong High School, the amount of debt repayment by financial institutions, etc., the amount of the refund of the restaurant deposit by the Docdong High School, and the litigation expenses related to the instant change of executive officers, etc., which are the school foundation operating the Docdong High School, claimed by the Plaintiff, do not constitute ex post payment of compensation under the instant change agreement

Furthermore, the lower court rejected the Plaintiff’s claim on contribution deduction on the ground that Article 34 of the Income Tax Act provides that a certain contribution may be included in the necessary expenses in calculating the income amount of the business operator, and that the calculation of necessary expenses for “compensation” as provided by Article 21(1)17(a) of the former Income Tax Act cannot be applied to the calculation of necessary expenses, and that the contribution of the Plaintiff’s assertion cannot be deemed as necessary expenses corresponding to compensation under the instant change agreement.

C. In light of the above provisions and relevant legal principles and records, the part concerning the establishment cost of the △△ school in Seoul Special Metropolitan City and the part concerning the instant executive change agreement, etc. and the part concerning the Plaintiff’s assertion in the judgment of the court below is justified, and there was no error by misapprehending the legal principles on the scope or calculation of necessary expenses deducted from the amount of income. In addition, unlike the judgment of the court below, even if there is room to view that part of the expenses for the establishment of the △△ Special Metropolitan City’s private school constituted “donation disbursed for the installation cost, etc. to a private school under the Private School Act” under Article 34(2)6 of the former Income Tax Act, the case imposing global income tax on other income that is not the Plaintiff’s business

D. However, among the judgment of the court below, it is difficult to accept the part of the judgment of the court below concerning the instant compensation for the following reasons.

(1) According to the evidence duly admitted by the court below, Article 1 of the written agreement on the change of executive officers (Evidence A) prepared by the plaintiff and the △△△ Council provides for the payment of compensation of KRW 7 billion (the amount of KRW 500 million by July 9, 2004; the intermediate payment of KRW 5 billion by July 22, 2004; the remainder of KRW 1.5 billion by the end of July 22, 2004); and Article 2 of the same Act provides for matters concerning the separation of ○○○ Private Teaching Institute operated by △△△△ High School at the time, △△ High School at the time, and Article 16 of the same Act provides that "the plaintiff shall not interfere with the acquisition and operation of the △△△△△ church by repaying all outstanding debts, such as bank debts, personal debts, restaurants, and store deposits, which are necessary for school management, before a corporation is separated."

In light of the contents of the instant agreement on change of executive officers and the developments leading up to the conclusion of the agreement, etc., it is reasonable to view that Article 16 of the same Act, if the △△ Council pays 7 billion won to the Plaintiff, the Plaintiff would have agreed to repay the unapproved debt which is or could have been attributed to the ○○ Research Institute, which is part of the matters to be handled by the Plaintiff in connection with the operation of the school, and if so, the amount equivalent to the unapproved debt required for school management out of the compensation that the Plaintiff received from the △△△ Council is not spent for separate reasons unrelated to the cause of the occurrence of the accident, but rather, rather, it is difficult to view that the Plaintiff was entrusted with the payment from the △△ Council or to reimburse the Plaintiff from the compensation received by the Plaintiff through the instant agreement on change of executive officers, and thus, it is difficult to view that

(2) Thus, the court below should have determined the amount corresponding to the "rewards" under Article 21 (1) 17 of the former Income Tax Act among the compensation paid by the △△ Council by examining the purport of the above Article 16 agreement, the scope of the non-approved liabilities that can be recognized as a financial obligation necessary for school management among the non-approved liabilities, and the actual repayment of the non-approved liabilities. However, the court below rejected the Plaintiff's assertion that the amount equivalent to the above non-approved liabilities repaid by the Plaintiff should be deducted from or excluded from the amount of other income. The court below erred by misapprehending the legal principles as to the calculation of other income amount, which led to failure

4. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)