ITAT Upholds BSNL VRS Compensation as Retrenchment, Allows Complete Income Tax Exemption u/s 10 [Read Order]

The Income Tax Appellate Tribunal (ITAT) Pune Bench has held that compensation received by employees of Bharat Sanchar Nigam Limited (BSNL) under the Voluntary Retirement Scheme (VRS), 2019 qualifies as retrenchment compensation and is fully exempt from tax under Section 10(10B) of the Income Tax Act 1961.

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The assessees who were all employees of BSNL had availed the VRS scheme which was part of the revival package of the Government of India for BSNL and MTNL. They had first offered the tax on the entire amount but claimed limited exemption of ₹5 lakh under Section 10(10C).

However, later they claimed the entire amount to be exempt, stating that they were claiming the same as retrenchment benefit under Section 10(10B). However, their claims were not entertained by the Commissioner of Income Tax CIT(A) either on the ground of delay.

The assessees claimed that the entire amount should be exempt since the VRS scheme was nothing but a forced retirement, which is intended to reduce the workforce. They relied on many court precedents where the tax authorities had granted the entire amount of the VRS scheme as exempt under Section 10(10B).

However, the Revenue department claimed that the assessees could claim the limited amount of ₹5 lakh under Section 10(10C).

The Tribunal ruled in favour of multiple assessees holding that the VRS compensation is a capital receipt not liable to tax. It further directed the Assessing Officers to allow full exemption under Section 10(10B) and grant consequential refunds after verification.

The Bench comprising Manish Borad [Accountant Member] observed that the VRS scheme was in substance a retrenchment exercise under a government-approved revival plan. Further, it held that such compensation falls within the ambit of Section 10(10B). It also reaffirmed that appellate authorities can admit new claims to determine correct tax liability.Accordingly, all appeals were allowed.

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