[1] Whether interest income is subject to taxation of interest income tax in a case where the interest income has already been specifically realized prior to the occurrence of a ground for impossibility of collecting a loan claim (affirmative)

[2] The case affirming the judgment of the court below that where a creditor becomes unable to collect a loan claim due to the debtor's default, interest income already received in the business year prior to the occurrence of the cause for impossibility of collection shall still be subject to interest income tax even if it became impossible to collect all of the bonds and interest income in the subsequent business year

[1] The income tax is the so-called "fixed-term taxation" that imposes tax on the income amount for one year from January 1 to December 31 of each year, and the interest income from non-business loans shall be calculated as the gross income amount for the pertinent year. Thus, in case where a partial recovery of a claim is made and it becomes objectively clear that the recovery of the remaining claim is impossible as of the time of recovery, it shall be deemed that there is no realization of the interest income that satisfies the taxation requirement in the pertinent taxable year unless the recovered amount is the principal. However, it shall not affect the tax liability for the interest income already realized prior to the occurrence of the impossibility of recovery.

[2] The case affirming the judgment of the court below that the interest income already received in the business year prior to the occurrence of the cause for impossibility of collection is still subject to the interest income tax even if the possibility of collecting the entire amount of the principal and interest of the bonds in the subsequent business year, where the creditor becomes unable to collect the credit due to the debtor's default

[1] Article 16 (1) of the former Income Tax Act (amended by Act No. 6429 of March 28, 2001), Article 51 (7) of the Enforcement Decree of the Income Tax Act, Articles 1 and 2 of the Addenda (amended by Act No. 6429 of December 31, 1998) / [2] Article 16 (1) of the former Income Tax Act (amended by Act No. 6429 of March 28, 2001), Article 51 (7) of the Enforcement Decree of the Income Tax Act, Articles 1 and 2 of the Addenda (amended by Act No. 6429 of December 31, 198)

Plaintiff (Law Firm KEL, Attorneys Kim Yong-hoon et al., Counsel for the plaintiff-appellant)

Director of the District Office

Seoul High Court Decision 2004Nu 11536 delivered on April 29, 2005

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

We examine the grounds of appeal.

Article 51(7) of the Enforcement Decree of the Income Tax Act amended by the Presidential Decree No. 15969 of December 31, 1998 provides that in calculating the gross income from non-business profits, if the whole or part of the principal and interest are not recoverable from the debtor or a third party because the relevant non-business profits are not recoverable prior to the final return of tax base or the determination or correction of tax base and tax base and tax amount due to the debtor's bankruptcy, etc., it shall be calculated by preferentially subtracting the principal from the recovered amount. In this case, if the recovered amount falls short of the principal, the gross income amount shall be treated as non-existent, and Article 1 of the Addenda provides that the amended Enforcement Decree shall enter into force on January 1, 199, and Article 2 provides that the amended Enforcement Decree shall apply from the income amount first accrued after the enforcement

According to the facts duly established by the court below, the plaintiff lent a total of KRW 2.139 million to the non-party company at the interest rate of 24% per annum, and as an agreement thereon, KRW 38,172,00,000 won in 197, KRW 375757,5750,000 in 1998, and KRW 6,1400 in 1999, but did not make a tax base return on interest income in 198 and 1999, but the non-party company did not directly pay the above disposition on the ground that the non-party company received interest income in 1999 and KRW 6,140,000 in 6,000 in 199,000,000,000,000,000,000 won in 1997, the plaintiff's ground of appeal No. 1758,575,000 in 200,00.

Furthermore, even under the premise that the amount of gross income should be calculated in the same way as the above provision should be imposed on the profits accruing from the non-business loan accrued prior to the enforcement of the provision under Article 51(7) of the Enforcement Decree, income tax is a so-called "fixed-term taxation" which imposes tax on the income amount for one year from January 1 to December 31 of each year, and the interest income accrued from the profits from the non-business loan shall be calculated as the gross income amount for the corresponding year. Thus, in case where a partial recovery of a claim is made, where it becomes objectively obvious that the collection of the remaining claim is impossible as of the time of collection, it shall be deemed that the interest income that satisfies the taxation requirement in the corresponding taxable year is not realized, but it shall not affect the liability to pay the interest income already realized prior to the occurrence of the impossibility of collection (see Supreme Court Decision 2001Du8490, May 27, 2003).

Therefore, the judgment of the court below on the premise that the provision of Article 51 (7) of the Enforcement Decree of the above case can be applied directly to the disposition of this case is not appropriate. However, the judgment below is just in holding that the interest income already received in 1998, which was the business year before the non-party company's default occurred due to the non-party company's default, is still subject to interest income tax even if it was impossible to recover all of the principal and interest of the bonds in the subsequent business year. There is no error in the misapprehension of legal principles as to the principle of substantial taxation, the principle of no taxation without law, and the principle of tax

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Hong-hoon (Presiding Justice)