The Delhi High Court on Tuesday quashed tax proceedings against Israeli drugmaker Teva Pharmaceutical Industries Ltd. and its US affiliate arising from a deal with Ranbaxy Laboratories, and ordered the income tax department to refund about ₹783 crore to Teva Israel.
This brings relief to Teva in a nearly nine-year-old court battle over the payments linked to erstwhile Ranbaxy, now part of Sun Pharmaceutical Industries Ltd.
A bench of Justice Dinesh Mehta and Justice Vinod Kumar found that the tax proceedings against Teva USA were time-barred and without jurisdiction and quashed the notices and proceedings arising from them.
The court also allowed Teva Israel’s plea seeking a refund of tax deducted in India on payments received for assessment years 2012-13, 2013-14 and 2014-15.
It directed the tax department to refund about ₹783 crore, along with applicable interest, within two months. The refund, however, is subject to Teva complying with conditions imposed by the court, including providing the required corporate guarantee or solvent surety.
“Respondent is directed to refund the said amount of approximately ₹783 crore, along with the applicable interest, within two months, subject to and upon compliance with the conditions of corporate guarantee/solvent surety recorded in paragraph 231. All pending applications, if any, stand disposed of accordingly,” the court said.
The written judgment was not available till press time, to assess the full reasoning and potential impact of the ruling on multinational companies that move contractual rights or payments between group companies in different countries.
The dispute
In 2010, Ranbaxy entered into an agreement with Teva Pharmaceuticals USA over the sale of a generic version of the cholesterol drug atorvastatin in the US. A commercial dispute later developed between the companies.
Teva USA had prepared to enter the US market, while Ranbaxy was also seeking to launch the drug. After the dispute, Teva USA sued Ranbaxy in the US. The companies eventually settled the dispute in December 2011 through a revised agreement.
Under the arrangement, Ranbaxy was allowed to sell the drug but agreed to share 50% of its profits from the product with Teva.
The original agreement was between Ranbaxy and Teva USA. However, Teva USA later transferred its right to receive the payments to Teva Pharmaceutical Industries Ltd. in Israel. Ranbaxy subsequently made payments totalling about ₹1,851 crore to the Israeli company and deducted tax in India.
The income-tax department questioned why the money was ultimately being paid to Teva Israel when the original agreement was with Teva USA.
The revenue department alleged that the transfer of the right to receive the money was structured to obtain a tax advantage under the India-Israel tax treaty. It therefore initiated tax proceedings against the Teva entities.
These proceedings were launched under Section 148 of the Income-tax Act, 1961, which allows the tax department to reopen an earlier tax assessment when it believes income that should have been taxed had escaped assessment.
Teva challenged the action before the Delhi High Court in 2017, arguing that the tax department could not reopen the assessments in the manner it had done.
In a parallel case involving the same transaction, the Ahmedabad bench of the Income Tax Appellate Tribunal in 2021 ruled in favour of Sun Pharma, formerly Ranbaxy, holding that the payment to Teva Israel was made for commercial reasons and was a legitimate business expense.
The Delhi High Court proceedings, however, concerned the tax liability and reassessment proceedings against Teva, rather than Ranbaxy’s treatment of the payment as a business expense.
Teva Pharmaceutical Industries is Israel’s largest drugmaker and one of the world’s biggest generic-drug manufacturers. It reported $17.3 billion in revenue in 2025 and has a significant India presence, operating through nine legal entities, employing more than 3,500 people and running manufacturing and R&D facilities.
Sun Pharma acquired Ranbaxy in 2014 for $3.2 billion, after regulatory and quality-control issues had weakened Ranbaxy’s US business. Ranbaxy had agreed to pay $500 million in 2013 to settle US allegations. The merger was completed in March 2015.
Emails to Teva, Sun Pharma and the tax department seeking comments remained unanswered till press time.
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