2017.02.28

2016 (Gyo-Hi) 169

Minshu Vol. 71, No. 2

Judgment on how to determine the necessity and extent of a reduction in value of housing land provided for use as a private road in the valuation of property for inheritance tax purposes

Case seeking revocation of inheritance tax reassessment and assessment and decision of additional tax

Judgment of the Third Petty Bench, quashed and remanded

Tokyo High Court, Judgment of January 13, 2016

The necessity and extent of a reduction in value of housing land provided for use as a private road in the valuation of property for inheritance tax purposes need to be determined by taking into account whether or not a reduction in the objective exchange value of the housing land is found and the level of such reduction, in light not only of the presence or absence of restrictions on the use of the land as a private road imposed by the Building Standards Act or other laws or regulations, but also of the location, shape and other properties of the housing land and its use as a road, as well as the level of difficulty to convert the housing land to a use other than a road based on these properties.

Article 22 of the Inheritance Tax Act



Inheritance Tax Act

Article 22

Unless otherwise specifically provided for in this chapter, the value of property acquired as a result of inheritance, bequest or gift shall be the market price at the time of acquisition of such property and the amount of liabilities to be deducted from the value of such property shall reflect the current state of the property at such time.

The judgment of prior instance is quashed.

This case is remanded to the Tokyo High Court.

Reasons for the petition for acceptance of final appeal filed by the counsel for the appeal, WAKITA Takashi



1. In this case, the appellants, who are coheirs, filed their inheritance tax returns on a certain portion of the land included in the inherited estate by classifying such portion as housing land provided for use as a private road as set forth under paragraph 24 of the Basic Instructions on Evaluation of Assets (Direct Tax Department/Property Tax Division 56, Direct Tax Department/Department of Rulings and Legal Affairs/Director of Property Valuation 17, National Tax Agency Commissioner Notification dated April 25, 1964; hereinafter, the “Evaluation Instructions”) (hereinafter, “Housing Land Used for Private Road”), and received from the Superintendent of the Sagamihara Tax Office a disposition of reassessment and a disposition of assessment and decision of additional tax for understatement (hereinafter collectively, the “Dispositions”), on the grounds that the land in question should be assessed as land with house for rent. The appellants thus seek a revocation of the Dispositions (to the extent that the assessed tax amount exceeds the declared amount in the case of the disposition of reassessment) from the appellee.

2. (1) Article 22 of the Inheritance Tax Act provides that unless otherwise specifically provided for in Chapter 3 of the same act, the value of property acquired as a result of inheritance, bequest or gift shall be the market price at the time of acquisition of such property and the amount of liabilities to be deducted from the value of such property shall reflect the current state of the property at such time.

(2) Paragraph 1 (2) of the Evaluation Instructions provides that the value of property shall be the market price, that “market price” means the value that is considered to be generally agreed upon when free trade takes place between a large number of unspecified parties at the time of taxation according to the current status of the property, and that such value shall be the value assessed in accordance with the provisions of the Evaluation Instructions. Paragraph 11 of the Evaluation Instructions provides that housing land shall be assessed, in principle, by the roadside land price method in case of housing land located in an area developing in an urban form or by the rate method in case of all other types of housing land.

Paragraph 24 of the Evaluation Instructions provides that the value of Housing Land Used for Private Road shall be assessed as 30% of the value calculated in accordance with the provisions of paragraphs 11 through 21-2 of the Evaluation Instructions (i.e., the roadside land price method or the rate method) (hereinafter, the “Value of Land Used by Self”), in which case the value of a private road shall not be assessed if it is provided for use by a large number of unspecified persons to pass through.

3. The outline of facts related to the case which became final and binding in the judgment of prior instance is as described below:

(1) Person A (hereinafter, the “Inheritee”) died on March 19, 2008 and the appellants jointly inherited the Inheritee’s estate (hereinafter this inheritance is referred to as the “Inheritance”).

(2) (a) The Inheritee’s estate included: the land specified under item No. 1 in List of Assets No. 1 in Exhibit 2 to the judgment of first instance (hereinafter, the “Sagamihara Land”) and the lands specified under item Nos. 1 through 4 in List of Assets No. 2 in Exhibit 3 to the same judgment (hereinafter, the “Yamato Lands”); and the three apartment buildings on the Sagamihara Land (hereinafter, the “Sagamihara Apartments”) and eight apartment buildings on the Yamato Lands (hereinafter, the “Yamato Apartments”).

(b) On May 25, 2008, the appellants held a legacy division conference, at which one of the appellants obtained the Sagamihara Land and the Yamato Lands and the Sagamihara Apartments and the Yamato Apartments (hereinafter, the “Apartments”).

(c) On the Sagamihara Land, there is a two-meter wide footpath-like empty space covered with interlocking pavement (hereinafter, the “Sagamihara Footpath-like Empty Space”). The Sagamihara Footpath-like Empty Space was developed adjacent to a city road under the Sagamihara City government’s guidance given based on the city’s guidelines for development activities, when the Inheritee constructed the Sagamihara Apartments by obtaining permission for development activities from the mayor of Sagamihara City in November 2002 as required by the City Planning Act.

(d) On the Yamato Land, there is a two-meter wide footpath-like empty space covered with interlocking pavement (hereinafter, the “Yamato Footpath-like Empty Space”). The Yamato Footpath-like Empty Space was developed adjacent to a city road under the Yamato City government’s guidance given based on the city’s “operational standards for the proviso to item (ii) of Article 25 of the Enforcement Ordinance of the City Planning Act,” when the Inheritee constructed the Yamato Apartments by obtaining permission for development activities from the mayor of Yamato City in November 2002 and June 2003 as required by the City Planning Act.

(e) Although there are some differences in level between the Sagamihara Footpath-like Empty Space and the city road adjacent to it and between the Yamato Footpath-like Empty Space and the city road adjacent to it (hereinafter the Sagamihara Footpath-like Empty Space and the Yamato Footpath-like Empty Space are collectively referred to as the “Footpath-like Empty Spaces”), there is nothing in particular that blocks public access to the Footpath-like Empty Spaces, apparently allowing the general public who are not residents of the Apartments to use these spaces as a roadside footpath. Since April 2013 at latest, both of the Footpath-like Empty Spaces have been a designated school-commuting road for a neighboring elementary school and have been used by pupils to commute to school.

(3) (a) On January 14, 2009, the appellants filed their inheritance tax returns reflecting the Inheritance with the Superintendent of the Sagamihara Tax Office, without assessing the value of the Footpath-like Empty Spaces, asserting that they constituted Land Used for Private Road provided for use by a large number of unspecified persons to pass through. Subsequently, the appellants filed their revised returns in which the value of the Sagamihara Footpath-like Empty Space was assessed as 30% of the Value of Land Used by Self.

(b) The Superintendent of the Sagamihara Tax Office issued the Dispositions dated July 8, 2011 to the appellants, on the grounds that neither of the Footpath-like Empty Spaces constituted Land Used for Private Road and should be assessed as part of the site of the Apartments (i.e., land with house for rent).

4. Based on its finding of the facts related to the case described above, the court of prior instance concluded, in summary, as follows and found that the Dispositions are legal and that the appellants’ claims should be all dismissed.

If a road owned by a private individual is understood as a private road: (i) while a private road which is deemed to be a road under the Building Standards Act by reason of its satisfaction of the requirement of having building sites join the road is subject to such restrictions as the building restrictions on a road (Article 44 of the same act) and the restrictions on changes to a private road (Article 45 of the same act); (ii) a private road which is provided on a de facto basis by its owner for use by the general public to pass through may be discontinued as a private road and used instead as general housing land, unless exceptional circumstances exist. Therefore, it is reasonable to understand that a private road as set forth in paragraph 24 of the Evaluation Instructions refers to one whose use is subject to such restrictions as those described in (i) above.

The Footpath-like Empty Spaces do not constitute Housing Land Used for Private Land as set forth in paragraph 24 of the Evaluation Instructions, since they are not land subject to legal restrictions such as those imposed by the Building Standards Act and, even if assuming that there is room to consider that the Footpath-like Empty Spaces are subject to restrictions such as those described in (i) above because they were developed under municipal guidance given based on the applicable guidelines or the like, this is a result of the Inheritee’s choice made based on the Inheritee’s judgment that it would be appropriate to accept such guidance in conducting the development activities, and the Footpath-like Empty Spaces have potential possibilities of, and a potential value for, being used in the same manner as general housing land by the appellants by changing the manner in which they are used.

5. However, the above conclusion of the court of prior instance is not acceptable for the following reasons.

(1) Article 22 of the Inheritance Tax Act provides that the value of property acquired as a result of inheritance shall be the market price at the time of acquisition of the property. The term “market price” as used here is understood as meaning the objective exchange value of the property at the time of decease of the Inheritee, which is the time of taxation. Then, as for housing land provided for use as a private road, if its use by the general public to pass through results in restrictions on the owner in using, benefiting from, or disposing of the housing land freely at the owner’s discretion, resulting, in turn, in a reduction of its objective exchange value, the value of such housing land should be reduced in the valuation of property for inheritance tax purposes as compared to housing land which is not subject to such restrictions.

Then, there is no reason to limit cases where the value of housing land provided for use as a private land should be reduced due to a reduction of its objective exchange value in the valuation of property for inheritance tax purposes to cases where the housing land is subject to restrictions such as building restrictions or restrictions on changes to a private road imposed by the Building Standards Act or other applicable laws or regulations. Instead, it should be necessary to determine the necessity and extent of a reduction in value of such housing land in the valuation of property for inheritance tax purposes by taking into account whether or not a reduction in the objective exchange value of the housing land is found and the level of such reduction, in light not only of the presence or absence of restrictions on the use of the land as a private road imposed by the Building Standards Act or other applicable laws or regulations, but also of the location, shape and other properties of the housing land and its use as a road, as well as the level of difficulty to convert the housing land to a use other than a road based on these properties.

(2) Let us apply this to the present case. Each of the Footpath-like Empty Spaces is a two-meter wide roadside footpath covered with interlocking pavement, has an appropriate area, and seems to be provided for use by the general public who are not residents of the Apartments to pass through freely. In addition, both of the Footpath-like Empty Spaces came to be provided for use as a private road due to administrative guidance given based on the applicable municipal guidelines or the like, in order to obtain permission of development activities required by the City Planning Act when the Apartments were constructed, and it does not seem easy for the appellants to convert the Footpath-like Empty Spaces to a use other than a road, as long as the Apartments exist. In light of these circumstances, even if the development activities for the construction of the Apartments resulted from the Inheritee’s choice, it does not immediately follow that it is unnecessary to assess the Footpath-like Empty Spaces by allowing for a reduction in value.

(3) Based on the above, the Court finds that the conclusion of the court of prior instance is illegal in that it erroneously interpreted and applied Article 22 of the Inheritance Tax Act because it concluded that it was not necessary to reduce the value of the Footpath-like Empty Spaces in the valuation of property for inheritance tax purposes without specifically examining the points pointed out in (1) above but, instead, solely on such grounds as that those spaces are not lands subject to restrictions imposed by the Building Standards Act or other applicable laws or regulations and that they are a private road developed as a result of the Inheritee’s choice made based on the Inheritee’s judgment that it would be appropriate to accept municipal guidance in conducting the development activities.

6. Therefore, the conclusion of the court of prior instance contains illegality that obviously affects its judgment, and the appellants’ reasons for the petition are justified to this extent. The judgment of prior instance should inevitably be quashed. The Court remands this case to the court of prior instance in order to have it further and fully heard with respect to the points pointed out in 5 (1) above regarding the Footpath-like Empty Spaces.

Accordingly, the Court unanimously decides as set forth in the main text.

Justice YAMASAKI Toshimitsu

Justice OKABE Kiyoko

Justice OTANI Takehiko

Justice OHASHI Masaharu

Justice KIUCHI Michiyoshi