The Supreme Court on Tuesday endorsed a decision to levy some 3.4 billion in penalty taxes on the former chairman of pachinko-machine maker Heiwa Corp., reversing an earlier Tokyo High Court ruling.
Kenkichi Nakajima filed a complaint with the Tokyo District Court against additional and penalty taxes imposed on him after tax officials charged in 1992 that he failed to report 50 billion in taxable income, the largest sum at the time for an individual.
The district court in 1997 endorsed both the additional and penalty taxes levied on him. The high court, however, nullified the 3.4 billion in penalty taxes.
At the Supreme Court, Nakajima and tax officials argued over whether the penalty taxes were justified on alleged interest income on 345.5 billion in loans that Nakajima provided to his family company in 1989. At the time, Nakajima sold his 30 million shares in Heiwa to the family firm and lent the 345.5 billion interest-free to the company so it could buy the shares.
Nakajima, 83, claimed that tax authorities could not impose additional and penalty taxes on him, citing a tax department guidebook that says interest-free loans given by an individual to a corporation are not taxable.
Supreme Court Presiding Judge Tokiyasu Fujita said the loans represented an irrational, unnatural deal and do not qualify for the tax exemption outlined in the guidebook.