BSNL VRS Compensation Treated as Retrenchment: Pune ITAT Allows Full Exemption u/s 10(10B)

1. Background of the Dispute

A cluster of 36 appeals came up before the ITAT Pune Bench, all filed by former employees of Bharat Sanchar Nigam Limited (BSNL) for A.Y. 2020-21 and A.Y. 2021-22. Each assessee had opted for the BSNL Voluntary Retirement Scheme, 2019 framed pursuant to the Government-approved revival package for BSNL and Mahanagar Telephone Nigam Limited (MTNL).

The key controversy was:

  • Whether the amounts received under BSNL VRS-2019 are:
    • only partly exempt under Section 10(10C) (up to ₹5 lakh), as treated in the original returns, or
    • fully exempt as retrenchment compensation under Section 10(10B) as a capital receipt not chargeable to tax.

In addition, several appeals involved delay in filing before the CIT(A) and a further question arose whether such delay could be condoned, especially when the assessees had initially followed professional advice and later sought to raise a new, more beneficial claim based on subsequent judicial developments.

2. Facts Common to All Assessees

2.1 Employment and Government Revival Plan

  • All assessees were employees of BSNL, which functions under the Department of Telecommunications, Government of India.
  • The Union Cabinet, in its meeting dated 23.10.2019, approved a revival plan for BSNL and MTNL, documented through an Office Memorandum of the Department of Telecommunications dated 29.10.2019.
  • As part of this revival package:
    • The Government decided to reduce the employee strength of BSNL.
    • A BSNL Voluntary Retirement Scheme, 2019 was introduced for employees aged 50 years and above.
    • Such employees opting for VRS were to receive ex gratia compensation.

2.2 Treatment in Original Returns of Income

  • On receipt of VRS compensation, the assessees:
    • Claimed exemption of only ₹5 lakh under Section 10(10C).
    • Offered the balance amount to tax in their returns, and corresponding taxes were duly paid.
  • No claim was initially made that the entire compensation was a capital receipt exempt under Section 10(10B).

2.3 Claim Before CIT(A) for the First Time

  • The claim that the whole compensation under BSNL VRS-2019 is exempt u/s 10(10B) (as retrenchment compensation) was raised for the first time before the CIT(A).
  • In some cases:
    • CIT(A) dismissed the appeals on the ground of delay in filing.
  • In other cases:
    • CIT(A) refused to entertain the fresh claim, observing that such a claim could only be made through a revised return, not directly at the appellate stage.

Aggrieved, all assessees approached the ITAT Pune.

3. Assessees’ Contentions and Reliance on Case Law

3.1 Core Argument

The assessees, through their authorised representative, argued that:

  • Compensation received under the BSNL VRS-2019 is not merely a VRS payment covered by Section 10(10C).
  • Instead, it represents retrenchment compensation, part of a Government-mandated workforce reduction driven by financial stress and restructuring.
  • Therefore, the entire amount qualifies for exemption under Section 10(10B) as a capital receipt.

3.2 Judicial Precedents Relied Upon

The authorised representative placed reliance on a series of decisions, including:

  1. Harish Kumar Vs. ITO (2025) 175 taxmann.com 379 (Chandigarh-Trib.)
  2. Dayal Singh Vs. ITO – ITA 519/CHD/2024
  3. Suresh Pal Chauhan vs. ITO (2023) 154 com 529 (Chandigarh-Trib.)
  4. Hindustan Photo Film Workers Welfare Centre Vs. Govt. of India (2017) 79 com 298 (Madras)
  5. CIT (TDS) Vs. Hindustan Photo Film Workers Welfare Centre (2021) 129 com 356 (Madras)
  6. Union of India Vs. M/s. Hindustan Photo Film Workers Welfare Centre and others – Special Leave Petition (Civil) Diary No.37247/2017
  7. Shree Rajeshwar Sharma Vs. ITO – ITA No.870/CHD/2018
  8. CIT Vs. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC)
  9. PCIT Vs. Karnataka State Cooperative Federation Ltd. (2021) 128 com 1 (Karnataka)
  10. CIT Vs. Pruthvi Brokers & Shareholders (2012) 23 com 23 (Bombay)