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

The Case

TEVA PHARMACEUTICALS USA INC. Vs DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3 (1) (1), INTERNATIONAL TAXATION NEW DELHI & ANR.
Case No.: W.P.(C)/1295/2023
Decided on: 09/15/2026
CNR: DLHC010029222023 ·
High Court of Delhi

The Legal Issue

Whether the payments received by Teva Israel from Ranbaxy India were chargeable to tax under the Income Tax Act, 1961, and whether the AAR was justified in declining to answer the question posed before it. Whether the reassessment proceedings initiated under Section 148 against Teva USA for Assessment Years 2012-13 to 2014-15 were valid and within limitation. Whether Teva Israel was entitled to refund of tax deducted at source by Ranbaxy India.

Facts of the Case

Teva Israel filed an application before the AAR under Section 245Q of the Income Tax Act, 1961, seeking a determination that payments received from Ranbaxy India were not chargeable to tax in India. The AAR, by order dated 25.10.2019, declined to answer the question on taxability while observing that the income belonged to Teva USA and not Teva Israel, and that the arrangement was prima facie designed for tax avoidance. The Revenue initiated reassessment proceedings under Section 148 against Teva USA for Assessment Years 2012-13 to 2014-15. Ranbaxy India had deducted tax at source at approximately 42% from payments made to Teva Israel, and Teva Israel sought refund of the tax deducted. The dispute arose from agreements between Ranbaxy and Teva entities concerning the commercial exploitation of Atorvastatin (generic Lipitor) in the United States under the ANDA regulatory regime.

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 the AAR's opinion that the transaction was conceived to avoid tax under United States' or Israel's laws was too farfetched. The Court set aside the impugned order of the AAR and allowed the application dated 15.04.2013 filed under Section 245Q, holding that the payment received by Teva Israel from Ranbaxy Laboratory Limited does not attract any tax under the Act of 1961. The Court quashed the notices under Section 148 and all consequential proceedings for Assessment Years 2012-13 and 2013-14, and quashed the order under Section 148A(d) dated 28.07.2022 and notice under Section 148 dated 29.07.2022 for Assessment Year 2014-15 as being both time-barred and without jurisdiction. The Court directed the respondents to refund the entire amount of TDS of approximately Rs. 783 crore 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' action of withholding the refund for more than 10-15 years was utterly arbitrary and confiscatory. The Court further observed that the right to tax is not a right of exclusion but a right of exaction, and that unless the statute and constitution confers such right, tax authorities cannot impose tax simply because some income has not suffered tax under any country's Income Tax Laws.

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