Double Income Tax Benefit for BSNL Retirees: ITAT Upholds Full VRS Exemption and Leave Encashment Relief [Read Order]

In a significant ruling for Bharat Sanchar Nigam Limited (BSNL) retirees, the Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that compensation received under the BSNL Voluntary Retirement Scheme (VRS), 2019 is fully exempt under Section 10(10B) of the Income Tax Act, 1961. The Tribunal also directed grant of full exemption in respect of leave encashment received by the assessee.

The assessee was originally employed with the Department of Telecommunications (DoT), subsequently transferred to BSNL, and later retrenched under the BSNL VRS Scheme, 2019. Pursuant to the scheme, the assessee received ex gratia compensation of ₹13,49,010. While filing the return of income, the assessee initially claimed exemption of ₹5 lakh and subsequently sought exemption of the entire amount.

The Commissioner ofIncome Tax (Appeals) [CIT(A)] dismissed the appeal as unadmitted on the ground that it was filed with a delay of 1,048 days against the intimation issued under Section 143(1) of the Income Tax Act, 1961, and that no sufficient cause had been shown for condonation of delay.

Before the Tribunal, the assessee contended that the entire retrenchment compensation of ₹13,49,010 was exempt under Section 10(10B) of the Income Tax Act, 1961. The assessee also sought full exemption in respect of leave encashment of ₹11,13,585, whereas only ₹3 lakhs had been allowed by the Revenue authorities. Reliance was placed on several judicial precedents supporting the claim.

The Departmental Representative supported the order of the CIT(A) and argued that BSNL employees could not be treated at par with Central Government employees since BSNL is a public sector undertaking and not a department of the Central Government. It was further contended that the enhanced leave encashment exemption limit of ₹25 lakhs was applicable only from 1 April 2023 and could not be extended to Assessment Year 2020-21.

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The Tribunal of Prashant Maharishi, Vice President took note of the decision of the Kerala High Court in Sanchar Nigam Pensioners Welfare Association v. Union of India, wherein it was held that BSNL VRS retirees are entitled to leave encashment tax exemption as they are to be treated as Central Government employees for the purpose of such benefits. The Tribunal also noted that several coordinate benches, including those at Ahmedabad, Indore and Mumbai, had consistently decided the issue in favour of BSNL employees.

The Tribunal observed “The Coordinate Benches of ITAT Ahmedabad, Indore & Mumbai have categorically held this issue in favour of the assessee. Further, the issue whether the assessee is a workman or not has also been dealt with by the Coordinate Bench in the case of Shraddha Pralhad Arote. In view of the above facts, we hold that the assessee is eligible for full exemption under Section 10(10B) of the Income Tax Act, 1961 in respect of the compensation received under the BSNL VRS Scheme, 2019.”

Accordingly, the Tribunal directed the Assessing Officer to grant exemption of ₹13,49,010 in respect of retrenchment compensation and ₹11,13,585 towards accumulated leave encashment received by the assessee. The appeal was consequently allowed in favour of the assessee.

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