BSNL VRS-2019 Ex Gratia Held Eligible for Section 10(10B) Exemption by ITAT Panaji

Background of the Dispute

Former employees of Bharat Sanchar Nigam Limited (BSNL) opted for retirement under the “BSNL Voluntary Retirement Scheme, 2019” and received ex gratia payments. In their original returns, these ex gratia amounts were generally treated as amounts received under a voluntary retirement scheme, with exemption claimed only to the limited extent available under Section 10(10C) (i.e., up to Rs. 5 lakh).

Subsequently, based on emerging judicial precedents, several BSNL retirees, including the assessees in Saguirodin Amid Aga Vs ITO (ITAT Panaji), claimed that the entire ex gratia represented retrenchment compensation, which is exempt as a capital receipt under Section 10(10B) of the Income Tax Act 1961.

The core question before the Panaji Bench of the ITAT was:

Whether ex gratia paid under the BSNL Voluntary Retirement Scheme, 2019 is, in substance, “retrenchment compensation” exempt under Section 10(10B), or whether it is merely a voluntary retirement benefit covered only by the restricted exemption available under Section 10(10C).

Appeals Before ITAT Panaji

Nature of the Proceedings

• Three appeals were filed by two different assessee(s) for A.Ys. 2020-21 and 2021-22.
• These appeals challenged separate Section 250 orders passed by the Addl./JCIT(A) (NFAC).
• The common issue running through all appeals related to the tax treatment of ex gratia amounts received under the BSNL Voluntary Retirement Scheme, 2019.

Common Substantive Issue

The Tribunal framed the key controversy as follows:

• Whether the amounts received under BSNL VRS-2019:
  • constitute capital receipts in the nature of retrenchment compensation, qualifying for exemption under Section 10(10B),
  • or are merely sums received on voluntary retirement, falling within Section 10(10C) with only the limited exemption of Rs. 5 lakh.

Arguments of the Parties

Assessee’s Position

Counsel for the assessee(s) contended that:

• The issue is no longer res integra, as multiple Benches of the ITAT (Pune, Ahmedabad, Chandigarh) have consistently held that ex gratia under BSNL VRS-2019 is retrenchment compensation.
• The scheme was not a standard voluntary retirement framework, but part of a Government-backed revival and restructuring exercise intended to sharply reduce BSNL’s workforce.
• In reality, employees had little practical choice due to:
  • severe financial stress of BSNL, and
  • prolonged salary issues and uncertainties.
• On this basis, the compensation should be treated as capital in nature and fully exempt under Section 10(10B) as retrenchment compensation.

They relied heavily on the consolidated decision in:

• Prathibha Jagdish Unawane Vs. ITO – ITA No.1117/PUN/2026 and others, order dated 29.04.2026,
  where the Pune Bench of the Tribunal had already adjudicated the BSNL VRS-2019 issue in favour of employees.

Revenue’s Position

The Departmental Representative (DR) argued that:

• BSNL was under a revival package, not a closure process; the company continued as a going concern, so the “closure” principle relied upon in other decisions did not apply.
• Employees had voluntarily opted under BSNL VRS-2019 by exercising an option on a portal; hence, the separation was consensual and not unilateral as in retrenchment.
• Under the Industrial Disputes Act, 1947, the definition in Section 2(oo) excludes “voluntary retirement” from the ambit of “retrenchment”.
• Therefore, labelling the scheme as “retrenchment in the garb of VRS” is contrary to the statutory definition and legal scheme.
• The assessee(s) had:
  • offered the VRS ex gratia to tax in their original returns,
  • claimed only Section 10(10C) benefit, and
  • paid taxes on the balance; hence, any additional claim should only be made by revising returns, not for the first time in appeal.

Written submissions were filed by the DR to emphasise that: