ITAT Bangalore Grants Full Exemption Under Section 10(10B) for BSNL VRS Compensation, Condones 1,540-Day Delay

The taxation of compensation received under voluntary retirement schemes has frequently been a subject of intense litigation between the revenue authorities and the assessee. A landmark judicial determination recently emerged from the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, in the case of Vittal Nayak Ullal Vs ITO. This ruling provides immense relief to former employees of Bharat Sanchar Nigam Limited (BSNL) by clarifying the taxability of severance packages distributed under the BSNL Voluntary Retirement Scheme, 2019.

The Tribunal not only permitted the total exemption of the retrenchment compensation under Section 10(10B) of the Income-tax Act, 1961 but also exhibited a lenient judicial approach by condoning a massive delay of 1,540 days in the filing of the first appeal. This comprehensive analysis breaks down the factual matrix, the legal arguments advanced, and the overarching principles established by the ITAT in this critical judgment.

1. Factual Matrix of the Dispute

The assessee in the present matter is a retired individual who commenced his professional career with the Department of Telecommunications (DoT) and subsequently transitioned to Bharat Sanchar Nigam Limited (BSNL), a prominent public sector enterprise operating under the aegis of the DoT.

The Introduction of the BSNL VRS 2019

Due to mounting financial distress and operational losses, the Union Cabinet sanctioned a comprehensive revival and restructuring blueprint for BSNL on 23 October 2019. As a pivotal component of this restructuring initiative, the BSNL Voluntary Retirement Scheme, 2019, was rolled out. The scheme was officially implemented via a Department of Telecommunications Office Memorandum dated 29 October 2019. Crucially, the financial backing for this severance initiative was entirely provided through the budgetary support of the Central Government.

The Assessee's Tax Filing and Subsequent Realization

Upon separating from the organization under this scheme, the assessee received an ex-gratia compensation amounting to ₹12,64,591.

  1. During the preparation of the income tax return for the Assessment Year 2020-21, the assessee relied on the Form No. 16 issued by the erstwhile employer.
  2. Acting upon misguided professional counsel and possessing a limited understanding of complex tax statutes, the assessee claimed a restricted exemption of merely ₹5,00,000 under Section 10(10C) of the Income-tax Act, 1961.
  3. The Central Processing Centre (CPC) processed this return without any alterations, issuing an intimation under Section 143(1) of the Act on 28 August 2021, which accepted the income as declared.