BSNL VRS 2019 Compensation Held as Retrenchment Pay: ITAT Pune Rules in Favour of Employees Under Section 10(10B)
Overview of the Ruling
The Pune Bench of the Income Tax Appellate Tribunal, in Makarand Prabhakar Abhyankar Vs ITO (ITA Nos.1496/Pun/2026, order dated 20 May 2026), adjudicated a batch of appeals filed by former employees of Bharat Sanchar Nigam Limited (BSNL) relating to Assessment Years 2020-21 and 2021-22. The central question before the Tribunal was whether the compensation received by BSNL employees under the BSNL Voluntary Retirement Scheme, 2019 constituted retrenchment compensation — qualifying as a capital receipt exempt from tax under Section 10(10B) of the Income Tax Act 1961 — or whether it fell within the ambit of Section 10(10C), which governs voluntary retirement compensation and carries a comparatively limited exemption ceiling.
The Tribunal ruled decisively in favour of the assessees, reversing the orders of the first appellate authority and directing the jurisdictional Assessing Officers to accept revised income computations and process refunds wherever applicable. The decision follows, and is entirely consistent with, the coordinate Bench ruling in Prathibha Jagdish Unawane v. ITO, ITA No. 1117/PUN/2026, decided on 29 April 2026.
Note: The final operative paragraph of the order, as supplied, contains an internal inconsistency — it references
Section 10(10C)while the entire preceding analysis, reproduced reasoning, and operative directions consistently applySection 10(10B). The original text is preserved without alteration below.
Background: The BSNL Revival Package and the VRS-2019 Scheme
Cabinet Approval and the Workforce Reduction Plan
On 23 October 2019, the Union Cabinet approved a comprehensive revival plan for BSNL and Mahanagar Telephone Nigam Limited (MTNL). This was followed by an Office Memorandum dated 29 October 2019 issued by the Department of Telecommunications. A key element of this revival package was workforce rationalisation — the BSNL Voluntary Retirement Scheme, 2019 was introduced specifically to enable employees aged 50 years and above to exit the organisation in exchange for ex-gratia compensation.
Tax Treatment Initially Adopted by the Assessees
At the time of filing their original returns, the assessees in this batch offered the compensation to tax after claiming the limited exemption available under Section 10(10C) of the Income Tax Act 1961, which is capped at Rs. 5 lakh. Tax was duly paid — and deducted at source by BSNL — on amounts exceeding this threshold.
It was only subsequently, upon becoming aware of favourable judicial precedents (most notably the Chandigarh Bench ruling in Harish Kumar v. ITO, (2025) 175 taxmann.com 379), that the assessees sought to revise their position, arguing that the entire compensation qualified as a capital receipt exempt under Section 10(10B) without any monetary ceiling.
Procedural Complications at the First Appellate Stage
The path to relief was not straightforward:
- In certain appeals, the first appellate authority (Addl/JCIT(A)-6, Delhi, functioning as NFAC) refused to condone delays in filing the appeals, dismissing them as time-barred.
- In other appeals, while the appeals were admitted, the CIT(A) declined to entertain the fresh exemption claim on the ground that it had not been raised in the original or revised return of income.
Aggrieved by these findings, all the assessees approached the ITAT Pune.
Legal Framework: Section 10(10B) vs Section 10(10C)
What Section 10(10B) Provides
Section 10(10B) of the Income Tax Act 1961 exempts any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act, Rules, orders, notifications, standing orders, award, or contract of service, at the time of retrenchment. The first proviso imposes a cap based on the lesser of:
- An amount computed in accordance with
Section 25F(b)of the Industrial Disputes Act, 1947; or - Such amount (not being less than fifty thousand rupees) as the Central Government may specify by notification.
However, the second proviso removes this cap entirely where the Central Government approves a specific scheme, having regard to the need for extending special protection to the workmen covered.
The Explanation to Section 10(10B) is particularly significant:
"(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;"