BSNL VRS 2019 Compensation Qualifies as Retrenchment Compensation Under Section 10(10B): Delhi ITAT Ruling in Section 154 Proceedings

Overview of the Decision

The Delhi Bench of the Income Tax Appellate Tribunal has granted exemption under Section 10(10B) of the Income-tax Act, 1961 to a retired BSNL employee in respect of compensation received under the BSNL Voluntary Retirement Scheme, 2019. The appeals — ITA Nos. 6474 and 6475/Del/2026 — were taken up for Assessment Years 2020–21 and 2021–22. The order was pronounced in open court on 07.09.2026 and finalised on 28.09.2026. The matter is significant not only for the substantive question of exemption but also because the appeals arose through Section 154 rectification proceedings rather than the conventional appellate route following assessment or processing.

Background and Facts

The assessee, a retired employee of Bharat Sanchar Nigam Ltd. (BSNL), received compensation under the BSNL VRS Scheme, 2019 and sought exemption on those receipts. The amounts involved were ₹11,27,706 for AY 2020–21 and ₹24,75,190 for AY 2021–22. Both the Assessing Officer and the Commissioner of Income Tax (Appeals)/Addl./JCIT(A)-1, Thiruvananthapuram, vide orders dated 29.04.2026 bearing DIN and order nos. ITBA/APL/S/250/2026-27/1088711710(1) and ITBA/APL/S/250/2026-27/1088712020(1), rejected the assessee's claim for exemption under Section 10(10B).

The assessee thereafter approached the Tribunal through twin appeals arising from those Section 154 proceedings.

At the heart of the dispute lies a fundamental distinction between two exemption provisions:

  • Section 10(10C) — Provides exemption for amounts received under a Voluntary Retirement Scheme, subject to a ceiling of ₹5 lakh. Any compensation exceeding this limit remains chargeable to tax.
  • Section 10(10B) — Provides exemption for retrenchment compensation received by a workman, with no such restrictive ceiling (subject to applicable conditions and notifications).

The assessee contended that the compensation received under the BSNL VRS Scheme, 2019, while labelled as voluntary retirement, was in substance retrenchment compensation, and therefore entitled to the benefit of Section 10(10B) rather than the restricted relief under Section 10(10C). The financial implication was material — amounts well in excess of ₹5 lakh were involved in both years, and the applicable exemption provision determined the entire tax exposure.

Statutory Framework: Section 10(10B) and Its Explanation

The Tribunal reproduced the text of Section 10(10B) in the extracted Pune Bench decision, which reads as follows:

"[(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, [at the time of his retrenchment:

Provided that the amount exempt under this clause shall not exceed—
(i) an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947); or
[(ii) such amount, not being less than fifty thousand rupees, as the Central Government may, by notification in the Official Gazette, specify in this behalf,]
whichever is less:

Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circumstances, approve in this behalf.]

Explanation.—For the purposes of this clause—
(a) compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment;
(b) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if—
(i) the service of the workman has been interrupted by such transfer; or
(ii) the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer; or
(iii) the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer;
(c) the expressions 'employer' and 'workman' shall have the same meanings as in the Industrial Disputes Act, 1947 (14 of 1947).]"