Delhi High Court: Teva Israel Wins ₹1,851 Crore Tax Battle

In a major victory for Israeli pharmaceutical company Teva Israel, the Delhi High Court has held that a ₹1,851 crore payment made by Ranbaxy Laboratories to Teva Israel under a settlement agreement is not taxable in India [Teva Pharma Vs Union of India].By way of an order passed on September 15, a bench of Justices Dinesh Mehta and Vinod Kumar said the payment could not be taxed merely because it was made by an Indian company to a foreign entity.“Mere payment by an Indian resident to a non-resident ipso facto does not constitute an income accruing or arising in India.The transaction neither falls within any of the specific deeming provisions under Section 5(2)(b) of the Act of 1961 nor of Section 9. In the absence of both, the jurisdictional foundation for issuance of notice under section 148 collapses,” the Court held.Ranbaxy had already deducted tax before making payment to Teva.The refund of the amount to Teva would be subject to Teva USA and Teva Israel furnishing the guarantees directed by the Court.Justice Dinesh Mehta and Justice Vinod KumarThe case concerned Atorvastatin, a cholesterol-lowering medicine sold by Pfizer under the brand name Lipitor.Ranbaxy was the first company to apply for US regulatory approval to sell a generic version of the drug. It was consequently entitled to a 180-day period during which no other applicant for the generic drug could receive approval.However, there was initially uncertainty over whether Ranbaxy would receive final approval on ti