BSNL VRS 2019 Compensation: ITAT Mumbai Treats Payment as Retrenchment Compensation Fully Exempt u/s 10(10B)

Background and Context

The Income Tax Appellate Tribunal, Mumbai Bench, in the case of Bajirao Shankar Jagdale Vs ITO, has once again affirmed that compensation received by BSNL employees under the BSNL Voluntary Retirement Scheme, 2019 is in the nature of retrenchment compensation, and therefore qualifies for full exemption under Section 10(10B) of the Income Tax Act 1961.

This ruling is consistent with a growing line of Tribunal decisions across different benches, including Chandigarh, Ahmedabad and Pune, which have all taken a similar view on the taxability of BSNL VRS 2019 payments.

The order also deals with an important procedural aspect: condonation of a long delay (of more than 1300 days) in filing the first appeal before the CIT(A). The Tribunal chose to prioritize substantive justice over technicalities, noting that the delay arose out of bona fide reasons such as lack of awareness of the legal position and dependence on professional advice.

Facts of the Case

Employment and VRS Scheme

• The assessee was an employee of BSNL, which functions under the administrative supervision of the Department of Telecommunications, Government of India.
• To revive BSNL and Mahanagar Telephone Nigam Limited, Mumbai (MTNL), the Union Cabinet in its meeting dated 23.10.2019 approved a comprehensive revival package.
• Pursuant to this, an Office Memorandum dated 29.10.2019 was issued by the Department of Telecommunications, formally notifying the framework under which the BSNL Voluntary Retirement Scheme, 2019 was to be implemented.
• The scheme targeted employees aged 50 years and above, offering Ex-gratia compensation to employees who chose to retire under the scheme as part of a workforce rationalization exercise.

Tax Treatment in the Original Return

• The assessee opted for BSNL VRS 2019 and received a lump-sum compensation.
• While filing the return of income for Assessment Year 2020-21, the assessee:
  • Claimed exemption of Rs. 5 lakh under Section 10(10C) in respect of the VRS amount, and
  • Offered the balance compensation to tax as income, paying tax accordingly.
• No claim was made in the return of income under Section 10(10B) treating the compensation as retrenchment compensation or as a capital receipt not chargeable to tax.
• The CPC, Bengaluru processed the return under Section 143(1) through an intimation dated 30.11.2021. No further rectification, revision, or appeal was undertaken at that stage by the assessee.

Appeal Before CIT(A) and Delay

• At a later stage, the assessee became aware of Tribunal rulings which held that compensation received under BSNL VRS 2019 is exempt under Section 10(10B).
• On this basis, the assessee filed an appeal before the CIT(A) contending, for the first time, that:
  • The entire VRS compensation was in fact retrenchment compensation within the meaning of Section 10(10B); and
  • Such compensation constituted a capital receipt not liable to tax.
• However, there was a delay of 1394 days in filing this appeal before the CIT(A).
• The assessee submitted reasons explaining the delay, primarily:
  • Lack of awareness about the eligibility of BSNL VRS payments for exemption under Section 10(10B), and
  • Dependence on professional advice at the time of filing the return.

Order of CIT(A)

The CIT(A) dismissed the appeal in limine, without examining the merits of the exemption claim.

Key Grounds for Dismissal

1. Inordinate Delay
   • The delay of 1394 days was considered “huge” and “inordinate”.
   • The assessee’s explanation was held to be insufficient to constitute “sufficient cause” under Section 249(3) of the Income Tax Act 1961.