Whether the loan interest paid for the investment in a joint business place is recognized as necessary expenses

The interest paid on borrowings for investing in a joint business place shall not be included in the necessary expenses of the joint business place in calculating the income amount.

Article 27 (Calculation of Necessary Expenses)

1. Details of the disposition;

The following facts are not disputed between the parties, or acknowledged by comprehensively taking account of the overall purport of the arguments in each entry of Gap evidence 1, Gap evidence 3-1, 2, Gap evidence 4-1, 1-1, and Eul evidence 1-1:

A. The Plaintiff owned ○○○○-dong ○○○○-dong ○○○○, 510.7 square meters, ○-○○ 180.2 square meters and its ground, and ○○ building composed of 180 square meters and its ground 6 stories (hereinafter “instant building”) jointly with ○○○, and operates a real estate rental business.

B. In filing a comprehensive income tax return in 2003, the Plaintiff included KRW 500 million (hereinafter referred to as "loan of this case") granted a loan from ○○○○○○○○○○○○○ on October 18, 2001, KRW 500 million (hereinafter referred to as "the loan of this case") granted a loan on March 19, 2002, KRW 100 million (hereinafter referred to as "the loan of this case") granted a loan on September 11, 2002, and KRW 100 million (hereinafter referred to as "the loan of this case") granted a loan of ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○, a personal owner, in the Plaintiff's name, hereinafter referred to as "the total interest paid to 200 million (hereinafter referred to as "the Plaintiff of this case").

C. The Defendant denied inclusion of the interest of the instant case in the necessary expenses on the ground that each of the instant loans is merely an individual obligation for the Plaintiff’s fulfillment of the Plaintiff’s investment obligation, and that the interest paid is also an expense not related to the joint rental business, and additionally imposed global income tax of KRW 14,730,890 on the Plaintiff in March 3, 2005 (hereinafter “instant disposition”).

2. Whether the disposition is lawful;

A. The plaintiff's assertion

(1) Adou Kim ○ and Lee ○○ operated a lease business after purchasing ○○○-dong land and its ground buildings located in ○○○○-dong, ○○○○, ○○, and the Plaintiff acquired the shares of Kim ○○, and the Plaintiff purchased ○○-dong, ○○-dong, ○○-dong, ○○-dong, which is adjacent to the land, and demolished the existing building on that ground, and then run a lease business by constructing the instant building on that ground.

(2) Of the loan KRW 500 million, the loan KRW 300 million was used to repay the loan KRW 300 million from ○○○ and ○○○○○ in order to raise the purchase price at the time of purchasing the above ○○ land and the building on its ground. The loan KRW 200 million and KRW 100 million were used to repay approximately KRW 300 million borrowed from △△△△△, his father, and the Plaintiff acquired the Plaintiff’s shares, and agreed with ○○ and ○○. The loan KRW 500 million was used as the purchase price of the above ○-○ land and the construction price of the building of this case until March 29, 202. The loan KRW 100 million was used to return the lease deposit money to the ○○○○ and ○○○○, and the interest on the loan KRW 200 million was actually deposited in the loan deposit passbook, and thus the interest on the loan is reverted to the relevant automatic deposit account.

(3) Therefore, each of the instant loans is a debt used by the Plaintiff, etc. to obtain rental income in operating a real estate rental business as a joint proprietor. Therefore, the instant key interest on the relevant debt should be included in the necessary expenses of the real estate rental income.

B. Relevant statutes

It is as shown in the attached Form.

(c) Fact of recognition;

The following facts are acknowledged based on each of the above evidence as evidence Nos. 5-1, 2, 7-1, 2, 8-1, 3, 6, 9-1, 2, and 2-1 of evidence Nos. 5-1, 2, and 2-1 of evidence Nos. 5-1.

(1) On August 30, 199, Kim ○ and Lee ○○ have jointly carried on real estate rental business after purchasing ○○○○○○○-dong land and its ground buildings from Do○○○-dong, ○○○○-dong, and completing the registration of ownership transfer by one half of each.

(2) On September 30, 199, Kim ○○ obtained a loan of KRW 300 million from ○○ Bank as collateral and paid as part of the purchase price to Do○○○○. Kim ○○ and Lee ○○○ concluded a lease on a deposit basis with Kim Jong-chul around February 200 and received KRW 100 million for a lease on a deposit basis.

(3) On September 5, 2001, the Plaintiff purchased 587 million won shares of Kim○, among the above land and buildings, from Kim○○, and entered into a joint agreement with Lee○-○ on October 15 of the same year with the content of a joint business that operates a joint business by investing business funds at a rate of 50 percent, respectively. At the time, the Plaintiff, from October 15, 2001, which was the starting date of the joint rental business to the end date of the contract, agreed to divide profits into half from October 15, 2001, which was the starting date of the joint rental business to the end date of the contract, and the Plaintiff agreed to jointly consult on

(4) On October 18, 2001, the plaintiff et al. changed the name of joint business operator for the purpose of leasing the above building from 'Ma-○ and Lee ○○' to 'the plaintiff et al.'. On March 5, 2002, the plaintiff et al. purchased ○-dong ○-dong ○○○-dong from ○○○○○○○○○○○ from ○○ Corporation to 393,376,60 won each, and completed the registration of ownership transfer.

(5) The plaintiff et al. removed the existing building on the above ○○ land and newly constructed the building on both the above land, and completed the registration of initial ownership on December 9, 2002 by one half of each of them.

(6) On June 27, 2002, the Plaintiff et al., separately from the foregoing business registration, conducted business registration using the instant building on July 1, 2002, with the head of ○○○○ Tax Office on the instant building, location of the instant building, type of real estate leasing business, business registration as of July 1, 2002, and conducted real estate leasing business using the instant building.

D. Determination

(1) Article 87(3) of the Income Tax Act provides that a joint business place with real estate rental income shall be deemed to be a single business place, and the amount of income shall be calculated. Thus, the interest paid on money borrowed by a joint business place to invest in a joint business place is deemed to constitute expenses unrelated to the business of the joint business place and thus, in calculating the amount of income, the relevant interest paid cannot be

(2) First, according to the Plaintiff’s assertion about KRW 300 million among the loan KRW 500 million and KRW 500 million among the loan KRW 500 million and the loan KRW 500 million, the Plaintiff et al. used the loan KRW 300 million out of the loan KRW 1 as the purchase price for the land above ○○, and the construction price for the building of the building above. According to the above facts acknowledged, the Plaintiff et al. started a joint lease business using the building of this case on July 1, 2002. Thus, the above loan was extended to the Plaintiff et al. to contribute funds according to the joint lease agreement for the purpose of running the real estate rental business using the building of this case. Accordingly, the loan is merely personal debt and it is not related to the joint lease business of this case. The interest payment is not related to the joint lease business of this case merely because it was automatically deposited in the deposit passbook from the lease profit of the building of this case.

(3) Next, the loan of this case ① KRW 200 million among the loan of this case KRW 500 million and KRW 100 million among the loan of this case ④ Even if based on the Plaintiff’s assertion, the loan of this case KRW 300 million was used by the Plaintiff as the acquisition price of shares in Kim○○. Thus, the loan of this case is an investment to be borne by the Plaintiff by the Plaintiff, and it is not related to the joint rental business of this case and its interest paid also.

As to this, the plaintiff asserted that the debt of KRW 200 million out of the loan KRW 500 million was agreed upon by the plaintiff and Lee ○○○ by adjusting the shares in the land of this case, but the testimony by the witness at the trial of this case alone is insufficient to recognize it, and there is no other evidence to recognize it, and even if the plaintiff's assertion is acknowledged, the above change of the debt obligor is merely an internal partnership agreement between the plaintiff and Lee○○, and it is irrelevant to the joint lease business of the building of this case. Thus, the plaintiff's assertion is without merit.

(4) Lastly, according to the Plaintiff’s assertion about the instant loan (3), the loan was used by the Plaintiff, etc. to return the deposit money of KRW 100 million to Kim Jong-young, a person having a right to lease on the existing building, for the construction of the instant building. Therefore, the loan borrowed to return the deposit money for the existing building to be removed for the construction of the instant building, which is to be provided for the instant joint lease business, is the debt that the Plaintiff, etc. bears to perform their investment obligations. Thus, it is not related to the instant joint lease business itself, which was commenced thereafter, and its interest is also the same.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and the judgment of the court of first instance shall be just and the plaintiff's appeal shall be dismissed as it is without merit. It is so decided as per Disposition.