2020.07.02

2019 (Gyo-Hi) 61

Minshu Vol. 74, No. 4

Judgment concerning a method of calculation reducing the amount of gross profits in a business year which includes the date of receipt of interest exceeding restrictions, etc. in the case where a bankruptcy claim pertaining to a claim for the return of unjust enrichment concerning the interest exceeding restrictions, etc. has been determined, and the accounting standards generally accepted as fair and appropriate

Case seeking the revocation of dispositions of notice, etc.

Judgment of the First Petty Bench, quashed and decided by the Supreme Court

Osaka High Court, Judgment of October 19, 2018

Where a corporation tax return was filed by including the amount of interest exceeding restrictions, etc., which the corporation had received, in the amount of gross profits, and a bankruptcy claim pertaining to a claim for the return of unjust enrichment concerning the interest exceeding restrictions, etc. was determined through bankruptcy proceedings in a subsequent business year, doing a calculation reducing the amount of gross profits in a business year which includes the date of receipt of the interest exceeding restrictions, etc. is not considered to conform to the accounting standards generally accepted as fair and appropriate.

Interest exceeding restrictions, etc.: interest paid in excess of the maximum interest rates prescribed in the Interest Rate Restriction Act and delay damages

Article 22, paragraph (2) of the Corporation Tax Act and Article 22, paragraph (4) of the Corporation Tax Act (prior to amendment by Act No. 7 of 2018)



Corporation Tax Act

Article 22, paragraph (2)

(2) When calculating the amount of income of a domestic corporation for each business year, the amount to be included in gross profits for the business year is to be the amount of proceeds for the business year arising from the sales of assets, transfer of assets or provision of services for value or without compensation, acceptance of assets without compensation, or other transactions other than capital, etc. transactions, except as otherwise provided.



Corporation Tax Act (prior to amendment by Act No. 7 of 2018)

Article 22, paragraph (4)

(4) The amount of profit for the business year prescribed in paragraph (2) and the amounts set forth in the items of the preceding paragraph are to be calculated in accordance with the accounting standards generally accepted as fair and appropriate.

The judgment in prior instance is quashed.

The appeal to the court of second instance filed by the appellee of final appeal is dismissed.

The costs of the appeal to the court of second instance and the final appeal shall be borne by the appellee.

Concerning the reasons for a petition for acceptance of final appeal stated by the representatives designated for final appeal, TATEUCHI Hisashi, et al. (except for the reasons excluded)

1. In this case, the appellee, who is the bankruptcy trustee of a bankrupt, Clavis Inc., filed requests for reassessment (hereinafter referred to as the "Requests for Reassessment") under Article 23, paragraph (2), item (i) and paragraph (1), item (i) of the same Article of the Act on General Rules for National Taxes (prior to amendment by Act No. 114 of 2011; the same applies hereinafter) with regard to corporation tax for the business years (a business year means a one year period from April 1 to March 31 of the following year; hereinafter referred to as the "Business Years") from business year 1995 to business year 2005 (excluding business year 1999) on the grounds that a bankruptcy claim pertaining to a claim for the return of unjust enrichment concerning interest exceeding restrictions, etc. (meaning interest paid in excess of the restrictive interest rates prescribed in the Interest Rate Restriction Act and delay damages; the same applies hereinafter), which the appellee had received in the Business Years, was determined in the subsequent bankruptcy proceedings and the amount of corporation tax to be paid thus became excessive as a result of doing a calculation while reducing the amount of gross profits in the Business Years corresponding thereto. However, the appellee received the dispositions of notice (hereinafter referred to as the "Dispositions of Notice") to the effect that there is no ground for reassessment. Therefore, the appellee primarily seeks the partial revocation of the Dispositions of Notice and secondarily seeks the return of unjust enrichment, etc. concerning part of the amount equivalent to corporation tax that corresponds to the aforementioned interest exceeding restrictions, etc.

2. Article 22 of the Corporation Tax Act (prior to amendment by Act No. 7 of 2018; the same applies hereinafter) provides that when calculating the amount of income of a domestic corporation in each business year, the amount to be included in gross profits in the business year is to be the amount of profit arising from transactions other than capital transactions, etc. in the business year, except as otherwise provided (paragraph (2)) and that the amount to be included in the amount of deductible expenses in the business year is to be the amount of expenses and loss in the business year, except as otherwise provided (paragraph (3)). The same Act then provides that the amount of profit, expenses, and loss in the business year is to be calculated in accordance with the accounting standards generally accepted as fair and appropriate (hereinafter referred to as the "fair accounting standards") (paragraph (4)).

In addition, Article 23, paragraph (2) of the Act on General Rules for National Taxes provides that in the case of falling under any of the items of the same paragraph, a request for reassessment under the provisions of paragraph (1) of the same Article may be filed within the period set forth in the same items. The same paragraph also provides that in the case of falling under any of the items of the same paragraph, a request for reassessment may be filed, and item (i) of the same paragraph sets forth the case "where the tax amount payable by filing the return (if a reassessment of the tax amount has been carried out, the reassessed tax amount) is overestimated due to the fact that the calculation of the tax basis, etc. or tax amount, etc. stated in the return contains errors or does not conform to the provisions of the national tax laws."

3. The outline of facts lawfully determined by the court of prior instance is as follows.

(1) A. Clavis, which was a stock company intended to engage in consumer finance business, etc., filed corporation tax returns for the Business Years (hereinafter referred to as the "Returns") by using the amount of income, which was calculated by including the amount of profit pertaining to interest exceeding restrictions, etc. that it had received from its customers in the amount of gross profits, as the tax basis.

B. On July 5, 2012, Clavis received an order of commencement of bankruptcy proceedings, and the appellee was appointed as its bankruptcy trustee.

C. In the aforementioned bankruptcy proceedings, a bankruptcy claim pertaining to a claim for the return of overpaid money of 55,533,739,096 yen in total that was notified within the ordinary period for investigation (hereinafter "Claim 1") and a bankruptcy claim pertaining to a claim for the return of overpaid money of 301,192,185 yen in total that was notified within the special period for investigation (hereinafter referred to as "Claim 2") were determined.

Incidentally, the appellee distributed about 350,000,000 yen in total to about 20,000 of the bankruptcy creditors of Claim 1 on August 27, 2015, and also distributed about 1,220,000,000 yen in total to about 66,000 of the bankruptcy creditors as the final distribution and subsequent distribution by August 24, 2016.

(2) On June 19, 2015, the appellee filed the Requests for Reassessment to the district director of the competent tax office on the grounds that the amount of corporation tax to be paid in the Business Years became excessive due to the determination of Claim 1. The reason therefor was that if a bankruptcy claim pertaining to a claim for the return of overpaid money is subsequently determined in bankruptcy proceedings, calculation should be done by reducing the amount received pertaining to interest exceeding restrictions, etc., which was the cause of the emergence of the claim, from the amount of gross profits retroactively to the business years which include the dates of the receipt.

(3) On September 14, 2015, the district director of the competent tax office made to the appellee the Dispositions of Notice to the effect that there is no ground for reassessment for all the Requests for Reassessment. The reason therefor was that even if the receipts of interest exceeding restrictions, etc., which were included in the amount of gross profits in the Business Years, are later determined to lack legal cause in bankruptcy proceedings, the received amount should be included in the amount of deductible expenses in the business year which includes the day on which the grounds for the determination occurred (the practice of handling profit and loss in this manner, that is, where a ground for change of profit, etc. in a past business year later occurs, profit and loss arising based on such ground is recorded in the business year which includes the date of occurrence of the ground, is hereinafter referred to as "prior period adjustment").

4. Based on the aforementioned facts, the court of prior instance determined as summarized below and upheld the primary claim by ruling that the Requests for Reassessment fulfill the requirements referred to in Article 23, paragraph (2), item (i) and paragraph (1), item (i) of the same Article of the Act on General Rules for National Taxes.

Prior period adjustment is an accounting standard specified by the Corporate Accounting Principles. The Corporate Accounting Principles are based on the premise of the establishment of a hypothesis that an enterprise's economic activities are run on a semipermanent basis. However, a company that received an order of commencement of bankruptcy proceedings (hereinafter referred to as a "bankrupt company") only remains in existence to the extent of the purpose of liquidation through bankruptcy proceedings until the bankruptcy proceedings are closed. Therefore, the aforementioned idea does not apply to a bankrupt company, and it should also be considered that the provisions on prior period adjustment in the Companies Act (Article 435, paragraph (2) of the same Act, Article 88, paragraph (3), Article 96, paragraph (7), etc. of the Regulation on Corporate Accounting) do not apply to a bankrupt company. In addition, prior period adjustment is generally made in the accounting process of a corporation based on the idea that determined financial statements are also used for restrictions on distribution and other restrictions as well as calculation of taxable income, etc. and the basis for adjustment of interests is shaken if calculation of income in financial statements is subsequently amended. On the other hand, where a bankrupt company needs to amend the amount of profit recorded in a past year, the basis for adjustment of interest with interested persons, such as shareholders, and creditors is unlikely to be shaken even if the bankrupt company makes a subsequent amendment. Furthermore, if the receipt of interest exceeding restrictions, etc. lacks legal cause and it is determined in bankruptcy proceedings that the interest exceeding restrictions, etc. should be returned, it is found to be reasonable for the bankrupt company to receive the refund of the amount of reduced corporation tax by retroactively reducing the amount of profit and make distributions to bankruptcy creditors who hold a claim for the return of overpaid money. Based on the above, the following calculation is considered to conform to a method of calculation that is in accordance with the fair accounting standards: out of a bankruptcy claim pertaining to a claim for the return of overpaid money, not only for interest exceeding restrictions, etc. corresponding to the part for which distribution has been made but also for interest exceeding restrictions, etc. corresponding to the part for which distribution has yet to be made, reducing the amount of gross profits retroactively to the business years which include the date of their receipt.

5. However, the aforementioned determination of the court of prior instance cannot be upheld for the following reasons.

(1) In general, in corporate accounting, the amount of profit that arose in the current accounting period and the amount of expenses and loss that arose in the same accounting period are compared to each other for each accounting period, and calculation of profit and loss should be determined as the difference between them. The Corporate Accounting Principles provide that the following recording method should be used in the case where a past calculation of profit and loss needs to be amended: record the amount required to be amended as the special profit and loss for the period in which the amendment becomes necessary, as prior period adjustment, without amending past financial statements (No. 2, 6. and Note 12 of the same). The "Accounting Standards for Change in Accounting and Correction of Error" (Corporate Accounting Standards No. 24 of December 4, 2009) also provide that when an error is discovered in past financial statements, the accounts are to be processed only by reflecting the cumulative effects of restatement of the past financial statements based on the error on the initial balance of the relevant period (paragraph 21) and also provide that the scope of errors for which the same accounting process is permitted is limited to the case where information available at the time of preparation of the initial financial statements was not used or erroneously used (paragraph 4(8)). These provisions in the Corporate Accounting Principles, etc. are based on the premise that calculation of profit and loss of a corporation should be done in terms of a period set by artificially delimiting the continuous economic activities of the corporation, and are considered to not expect the retroactive amendment of past calculation of profit and loss.

The Corporation Tax Act also provides that tax is to be imposed by using the amount of income in a business year (a period that serves as a unit for the calculation of the property and profit and loss of a corporation that is specified by laws or regulations or the articles of incorporation, etc. of the corporation; Article 13) as the tax base (Article 21) and that a written return stating the amount of income, etc. in each business year based on the determined settlement should be submitted (Article 74, paragraph (1)). The Act on General Rules for National Taxes also provides that the amount of tax to be paid in relation to the obligation to pay corporation tax established at the end of the business year is determined by a return filed by submitting a written return (Article 15, paragraph (2), item (iii) and Article 16, paragraph (1), item (i) and paragraph (2), item (i)).

In this manner, it is considered to be a principle in imposing corporation tax to calculate the amount of profit, etc. with respect to each business year. Therefore, even where it is subsequently determined that interest exceeding restrictions, etc., which was received by a corporation engaging in money lending business and was recorded as profit at the time of filing a return, should be returned as unjust enrichment on the grounds that it exceeds the restrictive interest rates prescribed in the Interest Rate Restriction Act, a process in which the interest exceeding restrictions, etc. is treated as loss in a business year which includes the date of occurrence of the ground, that is, the prior period adjustment, should be considered to conform to the fair accounting standards as an accounting process based on a ground for that determination.

(2) As exceptions to calculation of the amount of profit, etc. by delimiting economic activities with respect to each business year, the Corporation Tax Act sets systems, such as carryover of net operating loss in a business year when a blue return has been filed (Article 57) and refund by carryback of net operating loss (Article 80), for the case where tax can be imposed on income in a business year without consideration of the amount of net operating loss that arose in another specific business year. In addition, for a dissolved corporation, the same Act sets systems, such as the inclusion of the amount equivalent to expired net operating loss in deductible expenses in the case where no residual property is expected (Article 59, paragraph (3)). Taking into account that such special provisions concerning the cases where tax adjustment is made provide for specific requirements and procedures in detail on the premise that they are also applicable to a bankrupt corporation, the same Act is interpreted as making it a principle to limit tax adjustment that goes beyond a business year to that only based on the specially provided requirements and procedures even in relation to a bankrupt corporation. The same Act and laws and regulations related thereto include no special provisions that permit adoption of different handling from prior period adjustment in the case where a corporation filed a corporation tax return by including interest exceeding restrictions, etc., which it had received, in the amount of gross profits and a bankruptcy claim pertaining to a claim for the return of unjust enrichment concerning the interest exceeding restrictions, etc. was later determined through bankruptcy proceedings in a subsequent business year. In addition, it has not been observed in corporate accounting that doing a calculation reducing profit in a past year in the aforementioned case has been established as a fair and appropriate accounting practice. Taking these facts into account, the Corporation Tax Act cannot be interpreted as permitting an exception to the aforementioned principle with regard to the aforementioned case. This remains the same even if a distribution has actually been made for the whole or part of the aforementioned bankruptcy claim pertaining to a claim for the return of unjust enrichment and the corporation has actually performed a process to retroactively amend a settlement.

Based on the above, it is reasonable to consider that doing a calculation reducing the amount of gross profits in the business year which includes the date of receipt of the interest exceeding restrictions, etc. in the aforementioned case cannot be considered to conform to the fair accounting standards.

(3) When this determination is applied to this case, the Returns filed by Clavis that had received interest exceeding restrictions, etc. in the Business Years by including the interest exceeding restrictions, etc. in the amount of gross profits can be considered to be originally justifiable (see 1968 (Gyo-Tsu) No. 25, the judgment of the Third Petty Bench of the Supreme Court of November 9, 1971, Minshu Vol. 25, No. 8, at 1120). According to (2) above, doing a calculation reducing the amount of gross profits retroactively to the Business Years on the grounds that Claim 1 was determined in bankruptcy proceedings in a subsequent business year cannot be considered to conform to the fair accounting standards, irrespective of whether a distribution has actually been made with regard to part of Claim 1.

Therefore, it is obvious that the Requests for Reassessment filed on the premise of the aforementioned calculation reducing the amount do not fulfill the requirements prescribed in Article 23, paragraph (1), item (i) of the Act on General Rules for National Taxes.

6. The determination of the court of prior instance that differs from the above contains violation of laws and regulations that obviously affects the judgment. The designated representatives' arguments are well-grounded as an argument to the same effect, and the judgment in prior instance should inevitably be quashed.

According to the explanations made above, the Dispositions of Notice can also not be considered illegal on the grounds that they were made prior to the final distribution and subsequent distribution. Therefore, the Dispositions of Notice are lawful. In addition, it can also not be said that there is no legal cause for the appellant's holding the amount equivalent to corporation tax that corresponds to the interest exceeding restrictions, etc. that became the cause of the emergence of Claims 1 and 2. Consequently, it is obvious that the appellee's primary and secondary claims lack a premise, and the judgment in first instance that dismissed all of these claims are justifiable. Therefore, the appeal to the court of second instance filed by the appellee should be dismissed.

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

Justice MIYAMA Takuya

Justice IKEGAMI Masayuki

Justice KOIKE Hiroshi

Justice KIZAWA Katsuyuki

Justice YAMAGUCHI Atsushi