ITAT Pune Upholds Section 10(10B) Relief for BSNL VRS 2019 Compensation

The Income Tax Appellate Tribunal (ITAT) Pune has delivered an important ruling in the batch of appeals titled Shraddha Pralhad Arote Vs ITO (ITAT Pune), dealing with the taxability of compensation received by employees of Bharat Sanchar Nigam Limited (BSNL) under the BSNL Voluntary Retirement Scheme, 2019.

The Tribunal has held that amounts received under this scheme are in the nature of retrenchment compensation, treated as capital receipts and eligible for exemption under Section 10(10B) of the Income Tax Act 1961, and not merely restricted to the monetary limit of ₹5,00,000 under Section 10(10C).

Background: BSNL Revival and VRS 2019

Government Revival Package and Workforce Reduction

  • BSNL is a Government of India enterprise under the Department of Telecommunications.
  • To address the financial distress of BSNL and Mahanagar Telephone Nigam Limited (MTNL), the Union Cabinet, in its meeting dated 23.10.2019, approved a revival plan for both undertakings.
  • This decision was formally communicated through an Office Memorandum dated 29.10.2019 issued by the Department of Telecommunications.
  • A key condition of the revival strategy was a substantial reduction in staff strength through a voluntary retirement scheme.

BSNL Voluntary Retirement Scheme, 2019

  • Pursuant to the Cabinet decision, BSNL rolled out the “BSNL Voluntary Retirement Scheme, 2019” for employees aged 50 years and above.
  • Under this scheme, eligible employees who opted for retirement were granted ex-gratia compensation in addition to other terminal benefits.
  • Many employees accepted the scheme under circumstances of:
    • mounting financial stress,
    • prolonged delays in salary payments, and
    • severe uncertainty about future employment with BSNL.

In the original returns of income, the assessees treated this ex-gratia as taxable, claiming only the standard exemption of ₹5,00,000 under Section 10(10C) and paying tax on the balance.

Procedural Journey: From CPC to ITAT Pune

Processing under Section 143(1)(a)

  • Returns for the relevant years (primarily Assessment Year 2020-21 and Assessment Year 2021-22) were processed by CPC, Bengaluru.
  • Intimations were issued under Section 143(1)(a) without accepting any claim beyond the ₹5,00,000 limit under Section 10(10C).

Appeal before CIT(A) / NFAC and New Claim under Section 10(10B)

Subsequently, the assessees filed appeals before:

  • Addl/JCIT(A)-5, Chennai, or
  • National Faceless Appeal Centre (NFAC), Delhi

and for the first time contended that:

  • the entire ex-gratia amount was in fact retrenchment compensation and
  • thus was fully exempt as a capital receipt under Section 10(10B).

The Ld. CIT(A):

  • dismissed some appeals on limitation, citing delay in filing, and
  • refused to entertain the new legal claim in others on the ground that such a fresh claim can only be made via a revised return, not for the first time in appellate proceedings.

The aggrieved assessees carried the matter in a consolidated set of appeals to ITAT Pune.

  1. Whether an assessee can raise a fresh, purely legal claim for tax exemption (here, under Section 10(10B)) for the first time before the appellate authority, without having filed a revised return.

  2. Whether ex-gratia amounts received by BSNL employees under the BSNL Voluntary Retirement Scheme, 2019 constitute “retrenchment compensation” eligible for exemption under Section 10(10B), instead of being confined to the limited exemption of ₹5,00,000 under Section 10(10C).

Arguments Advanced by the Parties

Submissions on Behalf of the Assessees

The Ld. Counsel for the assessees raised the following key points: