Jayaganesan Veerabadran Vs DCIT (ITAT Chennai)
Summary: The Income Tax Appellate Tribunal, Chennai Bench, allowed two appeals filed by Jayaganesan Veerabadran for Assessment Years 2020-21 and 2021-22, holding that compensation received under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme, 2019 (BSNL VRS-2019) was eligible for exemption under Section 10(10B) of the Income Tax Act, 1961. The assessee, formerly employed as a Divisional Engineer with BSNL, received total ex-gratia compensation of ₹46,41,303, comprising ₹14,52,744 in AY 2020-21 and ₹31,88,559 in AY 2021-22. Although he had initially offered these amounts to tax, he subsequently claimed exemption before the appellate authority after becoming aware of favourable judicial precedents.
The Commissioner of Income Tax (Appeals) rejected the exemption on the ground that a Divisional Engineer occupied a managerial or supervisory position and therefore did not qualify as a “workman” under Section 2(s) of the Industrial Disputes Act, 1947. The CIT(A) also relied on Section 56(2)(xi), which concerns taxation of compensation received upon termination of employment. The Tribunal disagreed, observing that the BSNL VRS-2019 formed part of a Government-approved restructuring and workforce reduction programme. It held that the nature of the compensation and the actual duties performed were relevant, and designation alone could not establish managerial status.
Following the judicial approach adopted in Hindustan Photo Film Workers Welfare Centre and consistent Tribunal decisions involving BSNL employees, the Bench held that the compensation qualified for the statutory exemption. It also observed that an otherwise lawful exemption could not be denied merely because the amount had initially been offered to tax. Both CIT(A) orders were set aside, and the Assessing Officer was directed to allow the exemption after verifying the quantum of compensation received.
Cases Discussed
- Harish Kumar Vs ITO — ITA No. 42/CHD/2025, dated 30.05.2025 (ITAT Chandigarh) — Relied upon for treating BSNL VRS-2019 compensation as retrenchment compensation eligible for exemption under Section 10(10B).
- Martin Ekka — ITAT Chandigarh — Considered as a consistent Tribunal decision concerning exemption for BSNL VRS-2019 compensation; complete citation not stated in the order.
- Suman Nandlal Raval Vs ITO — ITAT Ahmedabad — Relied upon for the same treatment of BSNL VRS-2019 compensation; appeal number and date not stated in the order.
- Hindustan Photo Film Workers Welfare Centre Vs Government of India — Madras High Court — Relied upon regarding the treatment of Government-approved severance compensation under Section 10(10B).
- Shri Sekar Gnanaprakasam Vs The DCIT — ITA Nos. 1608 & 1609/Chny/2026, dated 21.05.2026 (ITAT Chennai) — Followed as a coordinate Bench decision on a similar issue.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The captioned appeals filed by the assessee are directed against the separate orders of the ld. Commissioner of Income Tax (Appeals), Addl./JCIT(A)-9, Delhi, both dated 16.03.2026 for Assessment Years 2020-21 and 2021-22. Since identical facts and common issues are involved, both the appeals were heard together and are disposed of by this consolidated order for the sake of convenience.
2. Brief facts: The assessee was employed with Bharat Sanchar Nigam Limited (BSNL), a Government of India undertaking, and was serving as a Divisional Engineer. Pursuant to the revival package approved by the Union Cabinet for BSNL and MTNL, BSNL introduced the Voluntary Retirement Scheme, 2019 (BSNL VRS-2019) vide Office Memorandum dated 04.11.2019 with the object of reducing surplus manpower and reviving the financial health of the company.
2.1 The assessee opted for the scheme and consequently ceased to be in service. Under the scheme, he received ex-gratia compensation aggregating to Rs.46,41,303, out of which Rs.14,52,744 was received during Assessment Year 2020-21 and the balance amount of Rs.31,88,559/- during Assessment Year 2021-22.
2.2 At the time of filing the return of income, the assessee, due to lack of awareness of the legal position, offered the compensation to tax. Subsequently, after the pronouncement of various judicial precedents holding that compensation received under BSNL VRS-2019 constitutes retrenchment compensation eligible for exemption u/s. 10(10B) of the Income Tax Act, 1961, the assessee claimed exemption before the appellate authority.
3. On appeal, the ld. CIT(A) accepted that BSNL VRS-2019 was introduced pursuant to the Government of India’s revival package and that the scheme was intended for reduction of surplus workforce. The CIT(A) also took note of the decisions of the Chandigarh Bench of the Tribunal in Harish Kumar, Martin Ekka and the judgment of the Hon’ble Madras High Court in Hindustan Photo Film Workers Welfare Centre, wherein compensation paid under similar schemes was held to be retrenchment compensation. However, the ld. CIT(A) denied the exemption on the ground that section 10(10B) applies only to a “workman” as defined u/s. 2(s) of the Industrial Disputes Act, 1947. According to the CIT(A), the assessee, being a Divisional Engineer, occupied a managerial or supervisory position and therefore did not fall within the definition of “workman”. It was further held that by virtue of section 56(2)(xi) of the Act, compensation received on termination of employment is taxable unless specifically exempt. Accordingly, the appeals were dismissed.
Against the rejection by the ld.CIT(A), against which the present appeals have been preferred.
4. The ld. Authorised Representative (AR) for the assessee submitted that the CIT(A) erred in rejecting the claim solely on the basis of the designation held by the assessee without examining the true nature of the scheme and the character of the compensation received. It was contended that BSNL VRS-2019 was not an ordinary voluntary retirement scheme but formed an integral part of the Government of India’s revival package aimed at compulsory downsizing of the workforce. The compensation received under the scheme was in substance retrenchment compensation and therefore qualified for exemption u/s. 10(10B). Reliance was placed upon the decisions of the Chandigarh Bench of the Tribunal in Harish Kumar vs. ITO (ITA No.42/CHD/2025 dated 30.05.2025), Martin Ekka, the Ahmedabad Bench in Suman Nandlal Raval vs. ITO, various appellate orders in the cases of BSNL and MTNL employees, and the judgment of the Hon’ble Madras High Court in Hindustan Photo Film Workers Welfare Centre, wherein compensation received under Government-approved restructuring schemes was held eligible for exemption u/s. 10(10B). It was further submitted that merely because the assessee had originally offered the compensation to tax, a lawful exemption cannot be denied. Reliance was placed on the settled principle that the Revenue is duty bound to assess the correct taxable income in accordance with law.
5. The ld. Departmental Representative (DR) for the revenue supported the order of the CIT(A). It was argued that section 10(10B) grants exemption only to compensation received by a “workman” and the assessee admittedly held the post of Divisional Engineer carrying supervisory and managerial responsibilities. Therefore, the statutory conditions of section 10(10B) were not satisfied. It was further submitted that section 56(2)(xi) specifically taxes compensation received on termination of employment unless covered by a specific exemption.
6. We have carefully considered the rival submissions and perused the material placed on record. There is no dispute regarding the fact that BSNL introduced VRS-2019 pursuant to the revival package approved by the Government of India. The object of the scheme was reduction of surplus manpower and revival of the public sector undertaking, which had been continuously incurring losses. The compensation paid under the scheme was funded through budgetary support provided by the Central Government. The Chandigarh Bench of the Tribunal in Harish Kumar, while considering the very same BSNL VRS-2019, held that the compensation paid under the scheme was in the nature of retrenchment compensation and eligible for exemption u/s. 10(10B). Similar views have been expressed by the Ahmedabad Bench in Suman Nandlal Raval, by the Chandigarh Bench in Martin Ekka, and by various appellate authorities dealing with identical claims of BSNL and MTNL employees. The Hon’ble Madras High Court in Hindustan Photo Film Workers Welfare Centre has also held that compensation received under Government-approved retrenchment schemes qualifies for exemption u/s. 10(10B), and the said view has attained finality. The ld. CIT(A), after noticing these judicial precedents, proceeded to deny the exemption solely on the basis that the assessee was designated as a Divisional Engineer. In our considered opinion, such an approach is legally unsustainable. Firstly, the applicability of section 10(10B) has to be examined in the context of the nature of the compensation and the scheme under which it is paid. The Government of India itself approved BSNL VRS-2019 as a restructuring measure involving reduction of workforce. The compensation paid was not an incentive for ordinary voluntary retirement but was a consequence of large-scale organizational restructuring and downsizing. Secondly, the ld. CIT(A) has merely relied upon the nomenclature of the post held by the assessee without recording any finding regarding the actual nature of duties discharged by him. It is well settled that designation alone is not decisive for determining whether an employee performs managerial or supervisory functions so as to stand excluded from the ambit of “workman”. No evidence has been brought on record by the Revenue to establish that the assessee was discharging functions predominantly managerial or administrative in nature. Thirdly, once coordinate benches of the Tribunal have examined the very same BSNL VRS-2019 and have consistently held the compensation to be eligible for exemption u/s. 10(10B), judicial discipline requires that the same view be followed in the absence of any distinguishing facts or contrary decision of any higher judicial forum. The reliance placed by the ld. CIT(A) upon section 56(2)(xi) is also misplaced. Section 56(2)(xi) merely provides for taxation of compensation received upon termination of employment where no specific exemption is available. Once the receipt falls within the scope of section 10(10B), the charging provision u/s. 56(2)(xi) cannot operate to nullify the statutory exemption. It is equally well settled that an assessee cannot be denied a lawful exemption merely because the claim was not made in the original return of income. The appellate authorities possess ample jurisdiction to grant relief where the assessee is otherwise legally entitled.
7. The co-ordinate bench of this Tribunal in similar situation in the case of Shri Sekar Gnanaprakasam Vs The DCIT [ITA Nos.1608 & 1609/Chny/2026] dated 21.05.2026 held as under:
8. Respectfully following the co-ordinate bench order of Tribunal referred supra and considering the entirety of the facts, the Government-approved nature of BSNL VRS-2019, the consistent judicial precedents on the issue, and the absence of any material to distinguish the assessee’s case from the earlier decisions, we hold that the compensation received by the assessee under BSNL VRS-2019 is eligible for exemption u/s. 10(10B) of the Income Tax Act. Accordingly, the both orders of the ld. CIT(A) are set aside and the Assessing Officer is directed to allow the exemption claimed u/s. 10(10B) in respect of the compensation received by the assessee under BSNL VRS-2019 for both the assessment years under consideration.
9. In the result, both the appeals [ITA Nos.2159 & 2160/Chny/2026] filed by the assessee are allowed. The Assessing Officer shall grant exemption u/s. 10(10B) in accordance with law after verifying the quantum of compensation received under the scheme.
Order pronounced in the open court on the 06th day of July 2026 in Chennai.
