SC declares applying income tax penalties on repealed ordinance unlawful

The Supreme Court has ruled that penalties under Sections 182, 184, and 186 of the Income Tax Ordinance (ITO) 2001 are unlawful and unsupportable. The five-member bench, led by Justice Shahid Waheed, made this decision, also stating that the interpretation made by a three-member bench in Eli Lilly Pakistan case is legally correct. This interpretation cannot be applied retroactively to assessments completed before June 30, 2002, while the contrary opinion in Islamic Investment Bank Ltd case is legally incorrect.

The larger SC bench was constituted to resolve the dispute, as a three-judge SC bench in the Islamic Investment Bank case had a different view, deviating from the strict prospective approach. The SC bench of equal strength in the Eli Lilly Pakistan case affirmed that assessments under the repealed 1979 ordinance must follow the old law, while assessments post-repeal should be governed by the ITO 2001.

The judgment emphasized that penalties added under Sections 182, 184, and 186 of the ITO 2001 create additional fiscal liability and cannot be applied retrospectively to assessments completed under the repealed 1979 ordinance. The court noted that penalties are not merely procedural amendments but impose independent fiscal burdens, hence cannot be applied retrospectively.