The Income Tax Appellate Tribunal (ITAT), Surat Bench, has held that compensation received by employees under the BSNL Voluntary Retirement Scheme (VRS), 2019 qualifies as retrenchment compensation exempt under Section 10(10B) of the Income-tax Act, 1961. The bench condoned delays in filing appeals and allowed two appeals filed by Dilipkumar Harilal Taniya for Assessment Years 2020-21 and 2021-22, directing the Assessing Officer to grant exemption and refund TDS where applicable. The decision aligns with multiple ITAT benches across India that have adjudicated the same issue in favor of BSNL employees.
Background & Facts
The Dispute
The assessee, Dilipkumar Harilal Taniya, a former employee of Bharat Sanchar Nigam Limited (BSNL), received ex-gratia payments under the BSNL VRS, 2019. The total amount of Rs. 47,35,871 was received in two installments: Rs. 14,82,328 in the previous year 2019-20 (AY 2020-21) and Rs. 32,53,543 in the previous year 2020-21 (AY 2021-22). The assessee initially offered these receipts to tax in the original returns for both assessment years. However, upon becoming aware of the exemption available under Section 10(10B), the assessee filed appeals before the Commissioner of Income Tax (Appeals) [CIT(A)] seeking exemption for the entire amount as retrenchment compensation.
Key Facts
- The assessee was a permanent employee of the Department of Telecom, later absorbed into BSNL, a public sector enterprise owned by the Central Government.
- BSNL notified the VRS, 2019 on 04.11.2019, which was approved by the Government of India for revival of BSNL and MTNL.
- The assessee received the first installment of Rs. 14,82,328 in AY 2020-21 and the second installment of Rs. 32,53,543 in AY 2021-22.
- The assessee filed returns for both years, offering the VRS compensation to tax due to lack of awareness about the exemption under Section 10(10B).
- The Assessing Officer (AO) processed the returns under Section 143(1) without granting exemption.
- The assessee filed appeals before the CIT(A) after becoming aware of the ITAT Chandigarh Bench decision in Harish Kumar v. ITO (ITA No. 42/Chd/2025, order dated 30.05.2025), which held that BSNL VRS compensation is exempt under Section 10(10B).
Procedural History
- 13.12.2020: Intimation of assessment under Section 143(1) issued by the CPC, Bengaluru for AY 2020-21.
- 27.04.2022: Rectification order under Section 154 issued by the AO for AY 2021-22.
- 17.02.2026: Orders passed by the CIT(A) dismissing the appeals as time-barred, without adjudicating the merits of the exemption claim.
- 23.06.2026: Appeals (ITA No. 300/Srt/2026 for AY 2021-22 and ITA No. 316/Srt/2026 for AY 2020-21) filed before the ITAT, Surat Bench.
- 16.07.2026: Orders pronounced by the ITAT, Surat Bench, allowing the appeals.
Relief Sought
The assessee sought:
- Condonation of delay in filing appeals before the CIT(A).
- Exemption of the entire VRS compensation of Rs. 47,35,871 under Section 10(10B).
- Refund of TDS deducted on the compensation amount.
- Consequential relief, including refund of tax, if any.
The Legal Issue
The central question was whether the compensation received by the assessee under the BSNL VRS, 2019 qualifies as retrenchment compensation exempt under Section 10(10B) of the Income-tax Act, 1961, or as VRS compensation exempt under Section 10(10C).
Arguments Presented
For the Appellant/Petitioner
The Learned Authorized Representative (AR) for the assessee submitted:
- The assessee was unaware of the exemption under Section 10(10B) until the ITAT Chandigarh Bench decision in Harish Kumar v. ITO (ITA No. 42/Chd/2025, order dated 30.05.2025) clarified that BSNL VRS compensation is exempt under Section 10(10B).
- The delay in filing appeals before the CIT(A) was due to lack of awareness of the legal position and was neither deliberate nor attributable to negligence.
- The assessee relied on multiple ITAT decisions, including Jayesh Kumar Tulsidas Sutaria v. ITO (ITA Nos. 2387 & 2388/Ahd/2025, order dated 17.02.2026), Shraddha Prahlad Arote v. ITO (ITA No. 262 and 261/Pun/2026, order dated 24.03.2026), Bajirao Shankar Jadale v. ITO (ITA No. 1389/Mum/2026, order dated 10.04.2026), and Renuka Narsimha Prabhu v. ITO (ITA 992/Bang/2026, order dated 29.05.2026), all of which held that BSNL VRS compensation is exempt under Section 10(10B).
For the Respondent/State
The Learned Departmental Representative (DR) for the revenue opposed the assessee's claim, contending:
- The compensation received by the assessee was under the BSNL VRS, 2019, which is not a case of retrenchment compensation.
- The impugned receipts were eligible for exemption under Section 10(10C), not Section 10(10B).
- The CIT(A) had rightly granted exemption under Section 10(10C) and dismissed the appeals as time-barred.
The Court's Analysis
The ITAT, Surat Bench, examined the issue in detail and relied on the decisions of co-ordinate benches of the ITAT across India. The bench noted that the controversy had been adjudicated in favor of the assessee by multiple ITAT benches, which held that the compensation received by BSNL employees under the VRS, 2019 was in the nature of retrenchment compensation eligible for exemption under Section 10(10B).
The bench reproduced relevant portions of the decisions in Harish Kumar v. ITO and Jayesh Kumar Tulsidas Sutaria v. ITO, which held:
"The assessee was not paid regular salary for several months prior to opting for the scheme and was under severe financial and professional uncertainty. In view of these circumstances, the assessee opted for the scheme as a measure of financial security. The compensation received by the assessee was in the nature of compensation under the BSNL VRS-2019 scheme. The compensation amount received under the scheme was offered to tax in the return of income due to lack of awareness regarding the exemption available under section 10(10B) of the Income-tax Act, 1961."
The bench also relied on the decision in Sarabjit Singh v. ITO (ITGA No. 764/Chd/2018, order dated 06.04.2019), which held that the amount received by the assessee was compensation for retrenchment of services and was not taxable.
The bench observed that the assessee had a "sufficient cause" for the delay in filing appeals before the CIT(A), as the assessee became aware of the legal position only after the ITAT Chandigarh Bench decision. The bench relied on the decision of the Hon'ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji (1987 AIR 1353, 1987 2 SCC 387), which held that substantial justice must prevail over technical considerations.
The bench concluded that the impugned receipts from BSNL were in the nature of retrenchment compensation eligible for exemption under Section 10(10B) and directed the AO to allow the exemption, subject to verification of necessary details. The bench also directed the assessee to file a computation of exemption under Section 10(10B) to the AO and directed the AO to grant consequential relief, including refund of TDS, if any.
The Verdict
The ITAT, Surat Bench, allowed both appeals for statistical purposes and directed:
- Condonation of delays in filing appeals before the CIT(A) for both assessment years.
- Exemption of the entire VRS compensation of Rs. 47,35,871 under Section 10(10B).
- The AO to verify the exemption claim and grant consequential relief, including refund of TDS, if any.
- The AO to pass orders for both assessment years simultaneously to avoid ambiguity in the working of exemption.
What This Means For Similar Cases
Retrenchment Compensation vs. VRS Compensation
- The decision clarifies that compensation received under the BSNL VRS, 2019, which was implemented for revival of BSNL and MTNL, qualifies as retrenchment compensation exempt under Section 10(10B), not VRS compensation exempt under Section 10(10C).
- The nature of the scheme and the circumstances surrounding its implementation are critical in determining the tax treatment of the compensation.
Delay Condonation and Substantial Justice
- The decision reinforces the principle that delays in filing appeals may be condoned if the assessee demonstrates "sufficient cause" for the delay, such as lack of awareness of the legal position.
- The decision aligns with the Hon'ble Supreme Court's decision in Collector, Land Acquisition v. Mst. Katiji, which prioritizes substantial justice over technical considerations.
Precedent Consistency Across ITAT Benches
- The decision highlights the consistency in the ITAT's approach across multiple benches, including Chandigarh, Ahmedabad, Pune, Mumbai, and Bangalore, in holding that BSNL VRS compensation is exempt under Section 10(10B).
- Practitioners should rely on these decisions to argue for exemption under Section 10(10B) in similar cases involving BSNL VRS compensation.
