Ashtbhuja Prasad Srivastava Vs ITO (ITAT Lucknow)
Introduction
The Income Tax Appellate Tribunal (ITAT), Lucknow, has allowed an assessee’s claim for exemption of ₹14,79,424 received as ex gratia under the Voluntary Retirement Scheme (VRS) of Bharat Sanchar Nigam Limited (BSNL).
Following the Madras High Court’s judgment in Hindustan Photo Film Workers Welfare Centre (CITU) v. Government of India, New Delhi, the Tribunal set aside the first appellate order on this issue and directed the Assessing Officer to allow the exemption in accordance with law.
The decision concerns the treatment of the particular ex gratia receipt. Although the grounds also raised a separate leave encashment claim, the Tribunal’s substantive discussion and express direction focused on the VRS ex gratia amount.
Facts of the Case
The assessee filed his return for Assessment Year 2020-21, which was processed under Section 143(1) of the Income-tax Act, 1961, through an intimation dated 8 September 2021.
Subsequently, he filed a rectification application, which the Assessing Officer rejected. The dispute concerned exemption for the ex gratia amount received under BSNL’s VRS.
The assessee challenged that rejection before the first appellate authority. However, the Additional/Joint Commissioner of Income-tax (Appeals)-2, Nagpur, dismissed the appeal through an order dated 17 June 2026.
Aggrieved by the continued denial of relief, the assessee approached the Tribunal.
Claims Raised by the Assessee
In his grounds of appeal, the assessee challenged the restriction of exemption for ex gratia to ₹5,00,000, against the total receipt of ₹14,79,424.
He also alleged that BSNL had failed to grant the full exemption while preparing Form 16 and deducting tax at source.
The assessee characterised the payment as arising from forceful retrenchment under the Government of India’s scheme for revival of BSNL through budgetary support. This was the assessee’s contention recorded in the grounds.
Another ground sought full exemption under Section 10(10AA) for leave encashment of ₹15,37,110. The assessee further argued that an eligible claim could be raised during appellate proceedings even where it had not been claimed, or had been short claimed, in the return.
Arguments Before the Tribunal
The assessee’s representative submitted that the authorities were unjustified in denying exemption for the BSNL VRS receipt.
It was argued that the issue had already been decided in favour of taxpayers by different Division Benches of the Tribunal, relying upon Hindustan Photo Film Workers Welfare Centre (CITU) v. Government of India, New Delhi, (2017) 79 taxmann.com 298 (Madras).
On that basis, the assessee requested that the appellate order be set aside and the exemption allowed.
The Departmental Representative supported the lower authorities’ orders. However, the Tribunal recorded that the Revenue could not controvert the submission that different Division Benches had already decided the identical issue in favour of assessees.
Madras High Court Judgment Relied Upon
The Tribunal examined the Madras High Court’s decision concerning a Central Government severance package for employees of Hindustan Photo Films (HPF).
In that case, the High Court treated the package as a special privilege or protection granted to the employees. It held that Section 10(10B) applied and that the receipts should not be included in the employees’ total income.
The High Court also directed disbursement to the employees of tax amounts that had been deducted and deposited pursuant to interim orders.
Its reasoning extended to the officers’ association in the circumstances of that case because the Government’s announcement and the relevant proceedings did not distinguish between employee categories when extending the special benefit.
ITAT’s Findings and Decision
The Tribunal identified the substantive issue as eligibility for exemption of the ₹14,79,424 ex gratia receipt under BSNL’s VRS.
It noted that the Revenue had brought no contrary material or judicial pronouncement on record to rebut the assessee’s case. Following the ratio of the Madras High Court judgment, the Tribunal held that the assessee was entitled to exemption for that amount.
Accordingly, it set aside the appellate order on this issue and directed the Assessing Officer to allow the exemption claimed in accordance with law. The appeal was allowed.
Scope of the Ruling
The order contains references to Sections 10(10B), 10(10C) and 10(10AA) in different parts of its discussion. The High Court reasoning reproduced and followed concerns Section 10(10B), while the Tribunal repeatedly describes the disputed exemption by reference to Section 10(10AA).
The operative relief should therefore be reported precisely: exemption was allowed for the specified BSNL VRS ex gratia receipt. The order does not separately analyse or expressly quantify relief for the leave encashment ground.
Conclusion
The ruling provides relief to the assessee on the ₹14.79 lakh VRS ex gratia payment, based on the judicial precedent followed and the absence of contrary material from the Revenue.
Cases Discussed
1. Hindustan Photo Film Workers Welfare Centre (CITU) Vs Government of India, New Delhi (Madras High Court); (2017) 79 taxmann.com 298. The Tribunal expressly followed the High Court’s ruling that the Government’s special severance package for HPF employees attracted Section 10(10B), including its treatment of the officers’ association.
FULL TEXT OF THE ORDER OF ITAT LUCKNOW
1. This appeal, by the assessee, is directed against the order of the Learned Addl/Joint Commissioner of Income-tax (Appeals)-2, Nagpur dated 17.06.2026 pertaining to the assessment year 2020-21. The assessee has raised the following grounds of appeal: –
“1. The Ld. CIT (appeal) has erred in confirming deduction/exemption towards ex gratia of Rs. 5,00,000/- only instead of whole amount of Ex-Gratia of 14,79,424/-. Employer of the assesse i.e. BSNL also erred in not allowing full deduction/exemption in Form 16 while deducting TDS.
2. The lower authorities also erred in assessing total income without granting the rightful exemption/deduction of Rs. 14,79,424/- towards Ex Gratia, received by the assesse, at the time of forceful retrenchment from BSNL in accordance with the scheme of Govt. of India for revival of BSNL through budgetary support given by Govt. of India, overlooking the settled judicial position that a lawful and eligible claim not claimed/short claimed in the return of Income, can be raised and admitted during appellate proceedings.
3. The Ld. CIT (A) and the lower authorities erred in not allowing the full exemption under Section 10(10AA) of the Income Tax Act, 1961, with respect to cash equivalent of leave encashment to Rs. 15,37,110/-. Out of total Leave encashment of Rs. 15,37,110/- received on forceful retrenchment from BSNL in accordance with the scheme of Govt. of India.”
2. The facts giving rise to the present appeal are that the assessee filed his return of income which was processed u/s 143(1) of the Income Tax Act, 1961 (“Act”, for short), vide intimation dated 08.09.2021. Thereafter, the assessee filed an application for rectification, which came to be rejected by the Assessing Officer (“AO”, for short). Aggrieved by the rejection of the rectification application and denial of exemption claimed u/s 10(10B) of the Act in respect of the ex-gratia amount received under the Voluntary Retirement Scheme (VRS) of Bharat Sanchar Nigam Limited (BSNL), the assessee preferred an appeal before the Ld. CIT(A). However, the Ld. CIT(A) dismissed the appeal and upheld the action of the AO in denying the claim of exemption u/s 10(10AA) of the Act. Now, the assessee is in appeal before this Tribunal.
3. Apropos to the grounds of appeal, the Ld. Counsel for the assessee vehemently argued that the authorities below were not justified in denying the claim of exemption u/s 10(10AA) of the Act in respect of the ex-gratia amount received by the assessee under the VRS of BSNL. He further submitted that the issue involved in the present appeal is no longer res integra, as different Division Benches of this Tribunal have already decided the identical issue in favour of the assessees by relying on the judgment of the Hon’ble Madras High Court rendered in the case of Hindustan Photo Film Workers Welfare Centre (CITU) Vs. Government of India, New Delhi (2017) 79 taxmann.com 298 (Mad.). He, therefore, submitted that the authorities below were not justified in rejecting the claim of the assessee and prayed that the impugned order of the Ld. CIT(A) be set aside and the exemption claimed by the assessee u/s 10(10AA) of the Act be allowed.
4. On the other hand, the Ld. Departmental Representative (“DR”, for short) supported the orders of the authorities below. However, he could not controvert the contention of the Ld. Counsel for the assessee that the identical issue had already been decided in favour of the assessees by different Division Benches of this Tribunal.
5. I have heard the Ld. Representatives of the parties and perused the material available on records. The only issue involved in the present appeal relates to the eligibility of the assessee for exemption u/s 10(10AA) of the Income Tax Act, 1961 (“Act”, for short), in respect of the ex-gratia amount of Rs.14,79,424/- received by him under the VRS of BSNL. In this regard, I find that the Hon’ble Madras High Court, in the case of Hindustan Photo Film Workers Welfare Centre (CITU) Vs. Government of India, New Delhi (supra), had an occasion to examine the applicability of the provisions of section 10(10B) read with section 10(10C) of the Act in respect of compensation received by employees. The Hon’ble High Court, after considering the relevant facts, the nature of compensation and the applicable statutory provisions, adjudicated upon the issue. The relevant observations and findings of the Hon’ble High Court are reproduced as under: –
“33. W.P.No.18608 of 2015; the petitioner in this Writ Petition is an association of officers working in HPF and the relief sought for by them is also identical. The yardstick applicable to workmen as defined under the Industrial Disputes Act, cannot be made applicable to the officers. Therefore, under normal circumstances whatever reasoning assigned by this Court in the preceding paragraphs would apply to the employees in the workmen category. Nevertheless, the Central Government does not make any distinction in its press information, dated 28.02.2014, nor do the impugned proceedings/circular, as it has extended the special benefit to all the employees of HPF. Therefore, in the given facts and circumstances, whatever is the interpretation given by this Court while testing the prayer made in the Writ Petitions filed by the workers would equally apply to this Writ Petition filed by the officer’s association.
34. In the result, the Writ Petitions are partly allowed on the following lines:-
(i) The declaratory relief sought for to declare the proceedings dated 20.03.2014, and the circular dated 21.03.2014, as illegal, is rejected and the relief sought for to pay 72 months, salary stands rejected.
(ii) It is held that the receipts in the hands of the employees of the HPF, pursuant to the severance package announced by the Central Government and intimated vide proceedings/circular is held to be a special privilege/protection granted to the employees of the HPF Ltd and therefore, the provisions of the Section 10(10B) of the Income Tax Act, 1961 are attracted and accordingly, the same shall not fall within the definition of income, while computing the total income of concerned employee and income tax cannot be deducted from the severance package paid to the employees of HPF.
(iii) Pursuant to interim orders dated 22.12.2015, the amounts deducted towards income tax was directed to be kept in deposit to the credit of the Writ Petition in Indian Bank, High Court Branch. In the light of the finding rendered supra holding that no income tax is recoverable from the severance package, the amount deducted as income tax shall be disbursed to the respective employees by the respondents.
(iv) It is reiterated that in these writ petitions, the Court has considered the VRS package and the consequential circular issued by the HBF relief sought for, for payment of 72 months salary instead of 60 months salary as proposed in the VRS Scheme and not to deduct income tax on the amount payable to them as in respect of recovery which were sought to be made pursuant to the circular dated 10.07.2013 and 01.07.2013 were already been quashed by this Court in W.P.Nos.24460, 24355 and 25491 of 2013 dated 29.11.2016.
(v) The respondents shall comply with the above directions within a period of one month from the date of receipt of a copy of this order as during the pendency of these writ petitions, all the employees have exercised their right to accept the severance package though without prejudice to their rights in the writ petition. Now the writ petition has been finally disposed of, it is only the implementation of the severance package which shall be done within one month from the date of receipt of a copy of this order.
(vi) As agreed to by the employees of the HBF, all the employees on receipt of the severance packages in terms of the above direction shall vacate and hand over vacant possession of the quarters within a period of one month from the date on which they received the monetary benefits. No costs. Consequently, connected Miscellaneous Petitions are closed.”
6. In the light of the aforesaid binding precedent and considering the fact that the Revenue has not brought any contrary material or judicial pronouncement on record to rebut the facts of the present case, I respectfully follow the ratio laid down in the aforesaid judgment. Accordingly, I hold that the assessee is entitled to claim of exemption in respect of the ex-gratia amount of Rs.14,79,424/- received under the VRS of BSNL. I, therefore, set aside the impugned order of the Ld. CIT(A) on this issue and direct the AO to allow the claim of exemption as claimed by the assessee in accordance with law. Thus, the ground raised by the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
