Where a promissory note is issued at a discount and the amount obtained by deducting the discount charge from its face value is issued, and the amount cannot be collected due to the default of the bill, etc., the imposition of interest income tax on the amount equivalent to the discount charge (negative)

In cases where a bondholder lends the amount of money from the bearer of a promissory note issued by a third party after deducting the interest rate from its face value to its maturity, the bearer of the promissory note transfers the amount after deducting the discount charge from its maturity until maturity, and the transferee of the note acquires the bill with the price after deducting the discount charge from its maturity. Thus, it is reasonable to regard the discount charge as compensation for the transfer of rights on the bill, and barring special circumstances, it cannot be viewed as a deduction of interest in the cash loan. Meanwhile, according to Article 57 (1) 7 of the Enforcement Decree of the Income Tax Act, the discount amount of the bill is calculated as the time of redemption pursuant to the agreement, even if the claim subject to taxation is impossible to collect due to the debtor's bankruptcy, etc., and it is objectively evident that income becomes impossible to realize the bill in the future. Thus, since income tax cannot be imposed if the promissory note at discount becomes treated as the maturity and the issuer or endorser cannot be collected from the discount charge.

Article 28 of the Income Tax Act, Article 57 (1) 7 of the Enforcement Decree of the Income Tax Act

[Plaintiff-Appellant] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Park Dong-young et al., Counsel for plaintiff-appellant)

Attorney Lee Jae-soo et al., Counsel for plaintiff-appellee

Head of Seogsan Tax Office

Daegu High Court Decision 85Gu353 delivered on May 24, 1989

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

We examine the grounds of appeal.

On the grounds of the judgment below, the plaintiff is a bond company that had borrowed money by means of bill discount, etc. from January 10, 1987 to August 3, 1987, the court below held that since the non-party Kim Young-young who had operated the Samsung Industrial Co., Ltd., which received a promissory note issued by the non-party Kim Young-young and paid interest from the face value to the due date after deducting the interest from the face value to the due date, the total amount of KRW 1,341,028,520 shall be lent to the non-party Kim Young-young, and the interest shall be deducted from the face value to the due date by the bill discount, the loan principal shall be limited to the amount equivalent to the face value on the bill and the amount actually paid after deducting the interest from the face value. Thus, it shall be deemed that the interest income has actually been realized and the tax disposition in this case shall be justified.

However, as determined by the court below, if the above Kim Young-hwan delivers a bill issued by a third party and received the money from the plaintiff after deducting the interest from its par value to its maturity, then the principal debtor in respect of the money is the issuer of the promissory note, and the above Kim Young-hwan is the issuer of the promissory note, and unless there are special circumstances, it shall be limited to the duty of recourse: Provided, That it shall not be limited to the duty of recourse, but the payer of the bill shall transfer the bill in return for deducting the so-called discount charge, such as the interest and expenses, from its maturity until its maturity, and the transferee of the bill acquires the bill in return for the amount obtained by deducting the discount charge from its maturity. Therefore, it is reasonable to regard the discount charge as a consideration for the transfer of rights on the bill, and it shall not be deemed as a

Meanwhile, according to Article 57 (1) 7 of the Enforcement Decree of the Income Tax Act, the discount amount of a bill is calculated by the time of redemption under the agreement, and even if a claim that is the cause of income has occurred, if it is objectively evident that the claim subject to taxation becomes impossible to recover due to the debtor's bankruptcy, etc. and thus no possibility of realizing the future income exists in the future, the income tax is levied on the taxable income. Therefore, in such a case, the income tax cannot be imposed on the taxable income (see, e.g., Supreme Court Decision 89Nu1896, Sept. 12, 1989). It is difficult to recognize the fact that the above promissory notes were returned at the maturity, due to the lack of self-sufficiency of the issuer and the above Kim Young-young's testimony, and the fact inquiry by the court below.

Ultimately, the lower court’s rejection of the Plaintiff’s assertion solely on the grounds stated in its reasoning is to have affected the conclusion of the judgment by misapprehending the legal doctrine on the bill discount charge and discount charge, failing to exhaust all necessary deliberations.

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

Justices Kim Sang-won (Presiding Justice)