BSNL VRS-2019 Compensation Held Exempt as Retrenchment Compensation Under Section 10(10B)

Background of the Dispute

A batch of appeals in the case of Rajendra Himmatrao Patil Vs ITO (ITAT Pune) and connected matters came up before the ITAT Pune concerning multiple BSNL employees (assessees) for A.Ys. 2020-21 and 2021-22.

Each assessee had received a payment from Bharat Sanchar Nigam Limited (BSNL) under the BSNL Voluntary Retirement Scheme, 2019 (BSNL VRS-2019), which was introduced as part of the Government of India’s revival package for BSNL and Mahanagar Telephone Nigam Limited, Mumbai (MTNL).

Initially:

  • The assessees:
    • Declared these receipts as taxable in their original returns.
    • Claimed exemption only under Section 10(10C) up to Rs. 5.00 lakh.
    • Paid tax on the balance amount over Rs. 5.00 lakh.

Subsequently, after favourable judicial developments, the assessees shifted their stand before the CIT(A) and claimed that:

  • The entire compensation was, in fact, “retrenchment compensation”,
  • Covered by Section 10(10B),
  • In the nature of capital receipt not chargeable to tax.

The CIT(A) either:

  • Dismissed appeals as time-barred, or
  • Refused to entertain the new claim on the ground that it had not been made through a revised return.

This led to second appeals before the ITAT Pune.

Government Revival Plan and BSNL VRS-2019

Revival Framework

Key policy background considered by the Tribunal:

  • The Union Cabinet in its meeting dated 23.10.2019 approved a revival plan for BSNL and MTNL.
  • The decision was implemented through an Office Memorandum dated 29.10.2019 issued by the Department of Telecommunications.
  • A core element of this revival package was a substantial reduction in workforce through BSNL Voluntary Retirement Scheme, 2019.

Conditions of BSNL VRS-2019

Under the scheme:

  • Employees aged 50 years and above were invited to opt for voluntary retirement.
  • On such retirement, they received ex-gratia compensation in addition to other service benefits.
  • This ex-gratia formed the subject matter of the dispute.

The central legal issue was whether such payments should be:

  • Treated as VRS compensation taxable beyond Rs. 5.00 lakh under Section 10(10C), or
  • Regarded as retrenchment compensation exempt under Section 10(10B) as a capital receipt.

Nature of Claim Before CIT(A)

Original Returns

  • Each assessee originally treated the compensation as falling under Section 10(10C).
  • A standard deduction of Rs. 5.00 lakh was claimed.
  • Tax was duly paid on the remaining portion.

New Claim Under Section 10(10B)

Only at the appellate stage before CIT(A), the assessees argued that:

  • The entire sum received from BSNL towards ex-gratia under BSNL VRS-2019 constituted retrenchment compensation.
  • Consequently, it was not taxable in view of Section 10(10B).

The CIT(A):

  • In some cases, rejected the appeals solely on the ground of delay in filing.
  • In other cases, refused to entertain the fresh claim citing that it must be raised through a revised return, not by way of appellate proceedings.

The assessees, therefore, approached the ITAT Pune challenging both:

  1. Non-condonation of delay; and
  2. Refusal to entertain the claim under Section 10(10B).

Arguments on Behalf of the Assessee

On Delay and Condonation

The learned counsel explained that:

  • Returns were filed based on professional advice available at that time.
  • The legal position relating to BSNL VRS-2019 payouts being eligible under Section 10(10B) crystallised only after subsequent Tribunal decisions.
  • Following favourable rulings, the assessees became aware of their entitlement and accordingly approached the appellate authorities.