Pakistan's Supreme Court has ruled that a bench of equal strength cannot depart from an earlier judgment of a co-equal bench. Where a later bench disagrees, it must ask the Chief Justice to constitute a larger bench instead of issuing a conflicting ruling. The five-member larger bench, headed by Justice Shahid Waheed and with reasons written by Justice Aqeel Ahmed Abbasi, delivered the judgment on 10 August 2026.

The precedent rule now binding

The court held that adherence to judicial precedent was essential for legal certainty, consistency and institutional integrity. A judgment of a co-equal bench binds benches of lesser strength and subsequent benches of equal strength. A later bench that believes an earlier ruling was wrong, or that changed circumstances require reconsideration, cannot overrule it on its own. Under Article 189 of the Constitution, the legal principles laid down by the Supreme Court bind all courts in Pakistan.

The tax conflict the ruling settles

The question was whether provisions of the Income Tax Ordinance, 2001 could be applied to assessments completed under the repealed Income Tax Ordinance, 1979. The 2009 judgment in Commissioner Inland Revenue v. M/s Eli Lilly Pakistan (Private) Limited (2009 PTD 1392) held that completed 1979 assessments could be dealt with only under the old law and that Section 122(5A) could not be applied retrospectively. The 2016 judgment in Commissioner Income Tax, Peshawar v. M/s Islamic Investment Bank Limited (2016 SCMR 816) took the opposite view. The larger bench held that Eli Lilly stated the correct law and that the contrary view in Islamic Investment Bank was erroneous; it set aside the conflicting judgment and restored the Eli Lilly position.

Effect on old assessments and penalties

The bench held that Sections 122(5) and 122(5A) of the 2001 Ordinance are prospective and cannot be applied retrospectively to assessments ending on or before 30 June 2002. Penalties under Sections 182, 184 and 186 of the 2001 Ordinance were held unlawful as applied to those old assessments, because they create an additional fiscal burden that did not exist under the 1979 regime. Provisions that add to a taxpayer's liability cannot be treated as merely procedural, the court said.

Procedure when a bench disagrees

A subsequent co-equal bench that considers an earlier judgment wrong must follow this course:

  • Decline to overrule the earlier co-equal judgment on the bench's own authority.
  • Refer the disagreement through the Chief Justice for constitution of a larger bench.

For tax practitioners and revenue officers, the practical next step is to treat the Eli Lilly position as restored: assessments completed on or before 30 June 2002 under the 1979 Ordinance should not be reopened to impose the 2001 Ordinance penalties at issue.

What the evidence does not establish

The pages reviewed did not state the judgment's own citation number, publish the full text, or specify any further review avenue available to the tax department. Those details would need to be confirmed against the judgment itself.