Tax Exemption on BSNL VRS 2019: ITAT Chandigarh Classifies Payout as Retrenchment Compensation Under Section 10(10B)

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, recently delivered a highly significant ruling in the case of Harish Kumar Vs ITO. The core of the dispute revolved around the taxability of amounts received by the assessee under the BSNL Retirement Scheme 2019. The judicial authorities were tasked with determining whether the financial payout constituted a standard voluntary retirement receipt—subject to a statutory cap—or if it was fundamentally a retrenchment compensation eligible for full tax immunity under Section 10(10B) of the Income Tax Act 1961.

This comprehensive analysis breaks down the factual background, the legal arguments presented by both the revenue and the assessee, the precedents evaluated, and the final rationale adopted by the Tribunal in granting complete relief to the assessee.

Factual Matrix of the Dispute

The assessee originally commenced employment with the Department of Telecommunication Services and the Department of Telecom Operations (DOT). Following a major organizational restructuring, the operational framework was transitioned, and the assessee was absorbed into Bharat Sanchar Nigam Limited (BSNL) with effect from 01/10/2000.

Decades later, facing severe financial turbulence, the organization introduced the BSNL Retirement Scheme 2019. The assessee opted for this exit route and was granted total financial emoluments amounting to ₹30,17,000.

When filing the income tax return for the Assessment Year 2021-22, the assessee claimed the entire receipt of ₹30,17,000 as fully exempt from taxation under Section 10(10B) of the Income Tax Act 1961.

The Assessing Officer's Intervention

The tax department scrutinized the return and raised objections to the full exemption claim. The Assessing Officer (AO) took the following position:

  • The scheme opted for by the assessee was explicitly labeled as a "Voluntary Retirement Scheme" (VRS).
  • Because the separation was theoretically voluntary and not a compulsory termination, the provisions of the second proviso to Section 10(10B) were invoked.
  • Consequently, the AO restricted the allowable exemption to the statutory ceiling of ₹5,00,000.
  • The remaining balance of ₹25,17,000 was disallowed, added back to the taxable income of the assessee, and subjected to standard tax rates.

Aggrieved by this substantial addition, the assessee escalated the matter to the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi. However, vide an order dated 20.12.2024, the CIT(A) dismissed the appeal and upheld the AO's restrictive interpretation. This prompted the assessee to file a secondary appeal before the ITAT Chandigarh.