The judgment turns on two propositions of tax law and one of fairness. On limitation, the Court held that the extended ten-year window for reassessment cannot be invoked by presuming the very fact, that the escaped income took the form of an asset, that the reassessment is meant to examine, and that the reopening here was in any event time-barred. On the refund, it drew a distinction the Revenue had blurred: the law permits a protective assessment where it is unsure in whose hands income should be taxed, but there is no concept of protective recovery, and sitting on a refund for over a decade while pursuing another entity was, the Court said, arbitrary to the point of being confiscatory.
New Delhi: The Delhi High Court has allowed a batch of five writ petitions filed by the Teva group, quashing reassessment notices issued to Teva Pharmaceuticals USA Inc. as time-barred and without jurisdiction, setting aside an order of the Authority for Advance Rulings, and directing the Income Tax Department to refund approximately Rs 783 crore of tax deducted at source to Teva Pharmaceutical Industries Ltd., Israel, with interest [Teva Pharmaceuticals USA Inc. v. Deputy Commissioner of Income Tax and connected matters].
A Division Bench of Justice Dinesh Mehta and Justice Vinod Kumar, in a judgment authored by Justice Mehta, decided the connected petitions arising out of a common set of transactions.
The dispute
The petitions arose from payments made by Ranbaxy Laboratories Ltd. (Ranbaxy India) to Teva Israel, and the tax treatment of those payments. The core questions concerned the taxability of the payments, the validity of reassessment proceedings initiated against Teva USA under Section 148 of the Income Tax Act, 1961, the correctness of a ruling of the Authority for Advance Rulings, and Teva Israel’s consequential claim for refund of the tax that Ranbaxy India had deducted at source.
The AAR, by an order of October 2019, had declined to answer the question on taxability posed by Teva Israel, while observing that the income in question belonged to Teva USA and not Teva Israel, and that the arrangement was prima facie designed for tax avoidance. It was on the strength of that observation that the Assessing Officer proceeded to reopen the assessment of Teva USA. Senior Advocates Harish Salve and Sachit Jolly appeared for the petitioners.
The AAR observation was not a finding
The Court held that the AAR’s order of October 2019 could not be treated as a ruling at all, because the AAR had, as a matter of fact, declined to answer the question posed to it. The observation that the income belonged to Teva USA, made while leaving the application undecided, could neither be construed as a finding nor used as a jurisdictional fact to initiate reassessment proceedings against Teva USA, an entity which had not even received the contentious amount. The reassessment, founded on that observation, was therefore built on an infirm foundation.
The limitation bar
On the extended period of limitation, the Court held that the existence of a qualifying asset is a jurisdictional fact anterior to, and distinct from, the question of whose income the underlying receipt represents. The Revenue, it held, cannot invoke the ten-year extended period under Section 149(1)(b) by presuming the answer to the very question sought to be examined in the reassessment; to hold otherwise would render the safeguard in that provision illusory. The Court further noted that the allegation that the escaped income took the form of an asset had not been contained in the show-cause notice and had surfaced for the first time in the order under Section 148A(d), after the assessee’s reply, contrary to the scheme of Section 148A, which requires the assessee to be confronted with the material relied upon before such an order is passed.
Tested against the ordinary three-year period under Section 149(1)(a), read with the timelines in the TOLA legislation and the Supreme Court’s decision in Rajeev Bansal, the Court found that no surviving period remained available to the Assessing Officer once the exclusion period ended; the order under Section 148A(d) and the Section 148 notice, passed weeks later, were accordingly void and barred by limitation. It held the reassessment for the relevant year time-barred and without jurisdiction, viewed from any angle.
Protective assessment, but no protective recovery
On Teva Israel’s refund claim, the Court accepted that the power to make a protective assessment is well recognised, applicable where there is doubt about the recipient of income or the hands in which it should be assessed, but drew a clear line at recovery:
“Though there is a concept of protective assessment, but there is no concept of protective recovery. In the absence of any provision for protective recovery, the respondents’ action of sitting over the refund of the petitioners… for more than 10-15 years is utterly arbitrary, to the extent of being confiscatory.”
Since even the Revenue’s own case was that the income was taxable in the hands of Teva USA and not Teva Israel, the Court held, the refund due to Teva Israel could not be withheld in the guise of proceedings against Teva USA, particularly as those proceedings had been stayed and had, in any event, now been quashed.
The relief
Allowing all five petitions, the Court quashed the Section 148 notices issued to Teva USA for the assessment years in question and the consequential proceedings, set aside the AAR’s order, and directed the Department to refund approximately Rs 783 crore of TDS to Teva Israel with applicable interest within two months. To protect the Revenue’s position should Teva USA ultimately be held liable, the Court made the refund conditional on Teva USA furnishing a corporate guarantee or solvent security, with Teva Israel also undertaking to pay the dues on demand should Teva USA fail to honour that guarantee.
Why it matters
The judgment consolidates several strands of reassessment jurisprudence that recur in high-value cross-border tax disputes. The most transferable is the limitation holding: the extended ten-year period is a departure from the norm, hedged by conditions, and the Revenue cannot bootstrap its way into it by assuming the asset-based foundation that the reassessment itself is supposed to test. Coupled with the Court’s insistence that a fresh basis for the extended period cannot be introduced only in the Section 148A(d) order, after the assessee has replied, the decision reinforces the procedural discipline the reworked reassessment regime imposes on the tax authorities.
Equally significant is the treatment of the AAR observation. An advance ruling authority that declines to answer the question before it does not thereby make a binding finding on a collateral point; a passing remark in an undecided application cannot supply the jurisdictional fact for reopening an assessment. That distinction matters because such observations are often pressed into service by the Revenue, and the Court’s refusal to let an unanswered application do the work of a ruling is a useful check.
The refund direction, and the language accompanying it, will resonate most widely. By holding that there is no concept of protective recovery, and that withholding a refund for over a decade while pursuing a different entity is confiscatory, the Court drew a firm line between the State’s legitimate interest in protecting revenue and the impermissible tactic of retaining a taxpayer’s money as leverage. The corporate-guarantee condition shows the balance the Court struck: the refund is released now, as the law requires, but the Revenue’s ability to recover, should Teva USA ultimately be held liable, is preserved. For multinational taxpayers caught in prolonged disputes over which entity bears the tax, the decision is a significant affirmation that a refund cannot be indefinitely deferred by the pendency of proceedings against another.
Case Title: Teva Pharmaceuticals USA Inc. v. Deputy Commissioner of Income Tax and connected matters [W.P.(C) 10711/2017, 10714/2017, 12721/2019, 4065/2022 and 1295/2023]
Bench: Justice Dinesh Mehta and Justice Vinod Kumar, High Court of Delhi at New Delhi
Reserved: February 26, 2026 | Pronounced: September 15, 2026
Appearances: Senior Advocates Harish N. Salve and Sachit Jolly, with others, for the petitioners. Special Counsel Himanshu S. Sinha and Senior Standing Counsel Sunil Agarwal and Vipul Agrawal, with others, for the Revenue.
Status: All five writ petitions allowed. Reassessment notices and the AAR order quashed/set aside; refund of approximately Rs 783 crore TDS to Teva Israel directed within two months, subject to corporate guarantee/solvent security.
