ISLAMABAD: The Supreme Court has ruled that benches of equal strength or of smaller numeric strength must follow earlier judgments of co-equal benches and cannot issue conflicting rulings on their own, strengthening the principle of judicial precedent and discipline.
A five-member bench headed by Justice Shahid Waheed said if a subsequent bench intended to take a different view from an earlier ruling by a bench of equal strength, the matter should be referred to the chief justice for constitution of a larger bench.
The judgment, authored by Justice Aqeel Ahmed Abbasi, came in a tax dispute involving taxpayer Khadim Hussain and the Regional Tax Office, Rawalpindi. The court also ruled that penalties imposed under Sections 182, 184 and 186 of the Income Tax Ordinance, 2001 could not be applied retrospectively to tax assessments completed under the repealed Income Tax Ordinance, 1979.
The five-member bench included Justice Naeem Akhter Afghan, Justice Malik Shahzad Ahmad Khan, Justice Aqeel Ahmed Abbasi and Justice Shakeel Ahmad. The court dismissed an appeal by the Commissioner Inland Revenue (Legal), Rawalpindi, against an October 2014 ruling by the Lahore High Court’s Rawalpindi bench.
The case arose after Hussain purchased property for 300,000 rupees in September 1999 without declaring the investment in his tax returns or providing an explanation for its source despite notices from tax authorities.
The tax authorities subsequently made an ex-parte assessment, adding the amount to his income for assessment years 2000-01 to 2002-03 and imposing penalties. The Commissioner of Inland Revenue (Appeals) upheld the income addition but deleted the penalties. The Appellate Tribunal Inland Revenue subsequently dismissed the department’s appeal, and the Lahore High Court upheld that decision.
The Supreme Court said the penalties under the 2001 law created an additional financial liability and therefore could not be imposed retrospectively on assessments governed by the 1979 law.
The court endorsed the legal position established in the earlier Eli Lilly case, which held that amendments to Sections 122(5) and 122(5A) of the Income Tax Ordinance, 2001 were substantive in nature and could not retrospectively apply to assessments completed on or before June 30, 2002.
It said a contrary view taken by a subsequent bench of equal strength in the Islamic Investment Bank case was erroneous. The court distinguished between procedural amendments and provisions that create or increase a taxpayer’s liability. While procedural or machinery provisions may, in certain circumstances, have retrospective application, provisions imposing additional fiscal or penal burdens cannot be applied retrospectively without clear legislative language authorising such an effect, it said.
“Such provisions do not merely regulate the mode or machinery for the determination of an existing tax liability; rather, they enlarge the legal consequences flowing from the taxpayer’s conduct by creating an independent fiscal burden,” the judgment said.
The court also emphasised that under Article 189 of Pakistan’s Constitution, legal principles laid down by the Supreme Court are binding on all courts in the country. It said adherence to previous judgments of benches of equal strength within the Supreme Court was also essential to judicial discipline, legal certainty and institutional integrity.
The court said a subsequent co-equal bench could not simply depart from an earlier ruling by issuing a conflicting judgment. Instead, it must seek the constitution of a larger bench through the chief justice or the relevant judicial committee.
The court ultimately answered the legal question regarding the validity of the penalties in the affirmative in favour of the taxpayer and dismissed the tax department’s appeal.
