ITAT Allows Exemption for BSNL VRS Compensation and Leave Encashment

Thimmappa Gowda Anthibettu Vs ITO (ITAT Bangalore)

Bangalore ITAT Grants BSNL VRS Employees Exemption for Retrenchment Compensation and Full Leave Encashment

In a batch of appeals filed by former BSNL employees who retired under the BSNL Voluntary Retirement Scheme, 2019, the Bangalore ITAT held that the compensation received under the scheme is eligible for exemption under Section 10(10B) as retrenchment compensation. The Tribunal noted that although the employees had originally offered the compensation to tax and the NFAC had dismissed several appeals on grounds of limitation, numerous Tribunal decisions across the country had already recognized the BSNL VRS compensation as eligible for exemption. The Tribunal observed that the employees had disclosed the income only because BSNL had deducted TDS and they became aware of the legal position only after subsequent judicial pronouncements. Accordingly, the delays in filing appeals were condoned and relief was granted on merits.

The Tribunal also allowed exemption for the entire leave encashment amount under Section 10(10AA). Relying on the Kerala High Court decision in Sanchar Nigam Pensioners Welfare Association, it held that BSNL employees retiring under VRS are entitled to be treated on par with Central Government employees for this purpose. It further noted that the enhanced exemption limit of ₹25 lakh introduced by Notification No. 31/2023 is a beneficial provision and should be applied at the appellate stage. The Tribunal emphasized that denying relief on technical grounds would result in unjust enrichment of the Revenue when the exemptions are otherwise legally available. Consequently, all appeals were allowed, including the appeal arising from rejection of a rectification application under Section 154.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These are the appeals filed by the various assessees challenging the separate orders of the NFAC, Delhi in respect of the A.Ys. 2020-21 and 2021-22. For the sake of easy reference, the details of the appeals as well as the issues involved are tabulated below:

2. The facts involved in all the appeals are similar to each other and in some appeals, one more issue was raised. For the sake of convenience, the common facts are narrated hereunder. Insofar as the another issue involved in some appeals it will be decided independently.

3. The brief facts of the case are that the assessees are individuals and employees of the BSNL who were opted to retire under the BSNL Voluntary Retirement Scheme, 2019. The Scheme was formulated for restructuring as well as to reduce the cost faced in view of the losses suffered by BSNL. The assessees are aged about 50 years and not conversant with the new technological systems being adopted by BSNL and therefore the organization had formulated the VRS, 2019. Even though the Scheme was named as Voluntary Retirement Scheme, in sum and substance, it is a retrenchment scheme designed to compulsorily reduce the workforce.

4. Under the said scheme, the employees were entitled to received ex-gratia / compensation and the disbursement was made in four equal installments and the first installment starts during the fourth quarter of the F.Y. 2019-20 (A.Y. 2020-21) and the balance three installments during the F.Y. 2020-21 (A.Y. 2021-22). While paying the retrenchment compensation, the BSNL also deducted the tax at source and therefore the assessees were under the impression that the said compensation is liable for tax under the provisions of the Income Tax Act. On that basis, the assessees had also offered the said compensation as income in the return of income filed. Later on, the assessees came to know about the decision of the Hon’ble Chandigarh Bench of this Tribunal in the case of Harish Kumar vs. ITO reported in (2025) 175 com379 in which the retrenchment compensation received by the BSNL employees were eligible for exemption u/s. 10(10B) of the Act.