ITAT Ahmedabad Allows Section 10(10B) Relief on BSNL VRS-2019 Compensation

Background of the Dispute

The Income Tax Appellate Tribunal, Ahmedabad Bench, delivered an important ruling concerning the taxability of amounts received under the BSNL Voluntary Retirement Scheme-2019 (BSNL VRS-2019). The decision arose out of two appeals filed by Nehaben Vimalkumar Shah vs ITO for Assessment Years (AY) 2020-21 and 2021-22.

The assessee, an employee of Bharat Sanchar Nigam Limited (BSNL), opted for BSNL Voluntary Retirement Scheme – 2019, a scheme introduced as part of the BSNL revival package approved by the Central Government. On opting for this scheme, the assessee received:

• VRS compensation of ₹18,46,414, and
• Leave encashment of ₹13,96,370

for AY 2020-21, along with similar benefits in AY 2021-22.

Initially, while filing the return of income, the assessee offered these amounts to tax, claiming only partial exemption. Subsequently, based on legal advice and emerging decisions of various benches of the Tribunal, the assessee asserted entitlement to full exemption:

• Under Section 10(10B) for VRS compensation; and
• Under Section 10(10AA) for leave encashment.

However, the Centralized Processing Centre (CPC), Bengaluru, while processing the return under Section 143(1) of the Income Tax Act 1961, did not grant the enhanced exemption subsequently claimed. The assessee therefore approached the first appellate authority, and thereafter the Tribunal, for relief.

Proceedings Before CIT(A)

The appeals were first considered by the Ld. Addl/Jt. Commissioner of Income Tax (Appeals)-2, Delhi [Ld. CIT(A)] under Section 250 of the Income Tax Act 1961, by orders dated 18.02.2026 for both AY 2020-21 and AY 2021-22.

Findings of the CIT(A)

The CIT(A) essentially rejected the assessee’s claim for full exemption on the following lines:

1. Scope of Section 10(10B)

   • According to the CIT(A), Section 10(10B) grants exemption only to:
     • A “workman” receiving retrenchment compensation; or
     • Compensation received under a scheme specifically approved by the Central Government, meant to provide special protection to “workmen”.
   • The CIT(A) took the view that the provision does not extend to employees in managerial positions.

2. Status of the Assessee as Non-workman

   • The assessee was serving as an Assistant General Manager in BSNL.
   • On this basis, the CIT(A) concluded that the assessee was performing managerial functions and did not fall within the definition of “workman” as contained in Section 2(s) of the Industrial Disputes Act, 1947.
   • Consequently, the CIT(A) held that the exemption under Section 10(10B) was not applicable.

3. Nature of BSNL VRS-2019 Scheme

   • Though the scheme formed part of a Government-approved revival package for BSNL, the CIT(A) reasoned that such approval alone does not automatically satisfy all conditions prescribed in Section 10(10B).
   • In the absence of specific satisfaction of statutory requirements, the claim of exemption was rejected.

4. Leave Encashment Under Section 10(10AA)

   • Regarding exemption on leave encashment, the CIT(A) held that the relief had already been restricted in line with the statutory ceiling and the existing CBDT notified limit applicable at the relevant time.
   • The assessee’s request for a higher exemption limit, based on the later CBDT Notification dated 24.05.2023, was not accepted in full.

5. Grievance on Opportunity of Hearing

   • The assessee contended that adequate opportunity for personal hearing through Video Conference (VC) was not granted.
   • The CIT(A) had issued VC notice with a short lead time of about five days.
   • Due to ill-health, the assessee could not attend and claimed that no second opportunity was afforded, arguing that the order was thereby vitiated.