Delhi High Court Quashes Aar Ruling And Reassessment Notices, Orders Refund Of Tds To Teva Israel

The Case

TEVA PHARMACEUTICALS INDUSTRIES LIMITED & ANR. Vs DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), INTERNATIONAL TAXATION, NEW DELHI
Case No.: W.P.(C)/12721/2019
Decided on: 09/15/2026
CNR: DLHC010470482019 ·
High Court of Delhi

The Legal Issue

Whether the AAR was justified in declining to answer the question posed by Teva Israel on the taxability of payments received from Ranbaxy India, and whether the reassessment proceedings initiated against Teva USA under Section 148 of the Income Tax Act, 1961 were valid. The Court also examined whether Teva Israel was entitled to refund of tax deducted at source by Ranbaxy India.

Facts of the Case

Ranbaxy India and entities of the Teva group entered into agreements concerning the commercial exploitation of Atorvastatin in the United States under the US ANDA regulatory regime. Payments were made by Ranbaxy India to Teva Israel, from which tax was deducted at source at around 42%. Teva Israel filed an application before the AAR under Section 245Q of the Income Tax Act, 1961 seeking a determination that the payments were not chargeable to tax in India. The Revenue opposed the application contending that the income belonged to Teva USA, not Teva Israel. The AAR, by order dated 25.10.2019, declined to determine the taxability in the hands of Teva Israel and observed that the arrangement was prima facie designed for tax avoidance. The Revenue also initiated reassessment proceedings under Section 148 against Teva USA for Assessment Years 2012-13 to 2014-15 and framed a protective assessment against Teva Israel.

Summary of the Decision

The Court held that the AAR was not justified in going into the intricacies of the transaction and business wisdom of the contracting parties, and that it travelled beyond what was required for determination of the question before it. The AAR's order was set aside and the application dated 15.04.2013 under Section 245Q was allowed, holding that the payment received by Teva Israel from Ranbaxy does not attract any tax under the Income Tax Act, 1961. The reassessment notices under Section 148 for AYs 2012-13 and 2013-14 were quashed. For AY 2014-15, the order under Section 148A(d) dated 28.07.2022 and notice under Section 148 dated 29.07.2022 were quashed as time-barred and without jurisdiction. The Court directed refund of TDS of approximately Rs. 783 crore to Teva Israel along with applicable interest within two months, subject to Teva USA furnishing a Corporate Guarantee/Solvent Security. The Court observed that there is no concept of protective recovery, and that the respondents cannot withhold the refund even in the guise of proceedings against Teva USA, especially when those proceedings stood stayed by the Court.

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