Delhi High Court Quashes Reassessment And Aar Ruling In Teva Pharmaceuticals Transfer Pricing Dispute

The Case

TEVA PHARMACEUTICALS USA INC. Vs DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), INTERNATIONAL TAXATION, NEW DELHI
Case No.: W.P.(C)/10714/2017
Decided on: 09/15/2026
CNR: DLHC015171802017 ·
High Court of Delhi

The Legal Issue

The Court was called upon to decide whether the payments received by Teva Israel from Ranbaxy India were chargeable to tax under the Income Tax Act, 1961, and whether the reassessment proceedings initiated against Teva USA under Section 148 were valid, and whether Teva Israel was entitled to refund of tax deducted at source. The Court also examined the correctness of the ruling of the Authority for Advance Rulings (AAR) which had declined to answer the question posed by Teva Israel on the ground that the income belonged to Teva USA. The Court further considered whether the extended period of limitation under Section 149(1)(b) was applicable and whether the proceedings were time-barred.

Facts of the Case

Teva Israel and Teva USA filed a batch of writ petitions arising out of agreements between Ranbaxy Laboratories Limited (Ranbaxy India) and Teva Pharmaceutical Industries Ltd., Israel (Teva Israel) concerning the commercial exploitation of Atorvastatin in the United States. Ranbaxy India, through its US subsidiary Ranbaxy Pharmaceuticals Inc., USA, had filed an Abbreviated New Drug Application (ANDA) and Teva Israel, through its US subsidiary Teva USA, also filed an ANDA. An agreement dated 07.12.2010 provided that if Ranbaxy did not obtain approval, Teva would manufacture the drug and share 50% of its profit margin with Ranbaxy. The agreement was subsequently flipped on 07.12.2011 after Ranbaxy obtained ANDA approval, and Ranbaxy made payments to Teva Israel from which tax was deducted at source at around 42%. Teva Israel filed a return in India and sought a ruling from the AAR that the income was not taxable in India, but the AAR declined to answer the question and held that the income belonged to Teva USA. The Revenue initiated reassessment proceedings against Teva USA under Section 148 for Assessment Years 2012-13 to 2014-15, and also framed a protective assessment against Teva Israel.

Summary of the Decision

The Court held that the payment received by Teva Israel from Ranbaxy India does not attract any tax under the Income Tax Act, 1961, as there was no accrual or arising of income in India and no business connection in India. The Court set aside the impugned order of the AAR and allowed the application under Section 245Q of the Act. The Court quashed the notices under Section 148 issued to Teva USA for AYs 2012-13 and 2013-14, and also quashed the order under Section 148A(d) and notice under Section 148 for AY 2014-15 as being time-barred and without jurisdiction. The Court further directed the respondents to refund the entire amount of TDS (approximately Rs. 783 crore) along with applicable interest to Teva Israel within two months, subject to Teva USA furnishing a corporate guarantee/solvent security. The Court observed that the AAR had travelled beyond its jurisdiction by going into the intricacies of the transaction and business wisdom of the contracting parties, and that the AAR's apprehension that the transaction was conceived to avoid tax under US or Israel laws was too farfetched. The Court noted that the protective assessment cannot lead to protective recovery, and that the respondents' action of withholding the refund for more than 10-15 years was utterly arbitrary and confiscatory. All pending applications were disposed of accordingly.

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