Introduction
In a landmark consolidated order, the Income Tax Appellate Tribunal (ITAT), Pune Bench, has provided significant relief to over two dozen employees of Bharat Sanchar Nigam Limited (BSNL) who received compensation under the BSNL Voluntary Retirement Scheme (VRS), 2019. The Tribunal, comprising Shri Dr. Dipak P. Ripote (Accountant Member) and Shri Vinay Bhamore (Judicial Member), held that the amount received is in the nature of retrenchment compensation exempt under Section 10(10B) of the Income Tax Act, 1961, as a capital receipt, and not merely eligible for the limited exemption of Rs.5 lakh under Section 10(10C). This ruling, delivered on June 19, 2026, condoned procedural delays and directed the Assessing Officer (AO) to grant refunds based on revised computations. The decision follows the reasoning of earlier ITAT judgments in Harish Kumar v. ITO (2025) and other coordinate bench rulings, marking a decisive shift in the tax treatment of VRS payments in the context of government revival plans.
Facts
The captioned appeals, spanning assessment years 2020–21 and 2021–22, involved multiple assessees who were employees of BSNL, a public sector undertaking under the administrative control of the Department of Telecommunications, Government of India. As part of the Union Cabinet’s revival plan approved on October 23, 2019, the government introduced the BSNL Voluntary Retirement Scheme, 2019, targeting employees aged 50 years and above to reduce the workforce. The scheme provided ex-gratia compensation upon voluntary retirement.
In their original income tax returns, the assessees claimed exemption under Section 10(10C) of the Act up to Rs.5 lakh and paid taxes on the remaining amount. However, for the first time during appellate proceedings before the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)], they argued that the entire compensation was a capital receipt not liable to tax under Section 10(10B) as retrenchment compensation. The Ld. CIT(A) dismissed many appeals either on account of delay in filing or on the ground that such a claim should have been raised via a revised return. Aggrieved, the assessees approached the ITAT, Pune Bench.
The Tribunal heard the appeals together via virtual hearing on June 18, 2026, with Shri Tanzil Padvekar appearing for the assessees and Shri Sanjay Keshavrao Dhivare representing the Revenue. The assessees placed reliance on a series of precedents, including Harish Kumar v. ITO (2025) 175 taxmann.com 379 (Chandigarh-Trib.), Dayal Singh v. ITO, Suresh Pal Chauhan v. ITO (2023) 154 taxmann.com 529 (Chandigarh-Trib.), and the Madras High Court decisions in Hindustan Photo Film Workers Welfare Centre v. Govt. of India (2017) 79 taxmann.com 298 (Madras) and CIT (TDS) v. Hindustan Photo Film Workers Welfare Centre (2021) 129 taxmann.com 356 (Madras), among others. The Revenue, through written submissions, opposed the application of Section 10(10B), arguing that the scheme was a voluntary retirement and that the earlier ITAT orders in Harish Kumar had erroneously extended the “closure doctrine” established in the Hindustan Photo Film case.
Reasoning
The Tribunal’s reasoning formed the core of the judgment, addressing both the substantive issue of taxability and the procedural question of delayed claims.
1. Nature of Compensation under BSNL VRS 2019
The central issue was whether the amount received from BSNL on account of the VRS, 2019, fell within the ambit of Section 10(10B) (retrenchment compensation) or Section 10(10C) (voluntary retirement). The Tribunal examined the factual backdrop: The scheme was part of a government-approved revival plan for BSNL and MTNL, aimed at reducing the workforce due to financial stress. The employees were aged 50 years and above, and the retirement was effectively forced by the employer’s financial compulsion and the closure of operations in certain areas. This aligned with the “closure doctrine” upheld by the Madras High Court in Hindustan Photo Film Workers Welfare Centre, which the Tribunal found directly applicable.
The Tribunal noted that the scheme, though styled as “voluntary,” was not a mere option for personal benefit but arose from the employer’s necessity to downsize, rendering the compensation akin to retrenchment compensation under Section 10(10B). Consequently, it was a capital receipt not liable to tax, and not limited to the Rs.5 lakh exemption under Section 10(10C). The coordinate bench rulings from Chandigarh, Mumbai, Pune, and Ahmedabad in Harish Kumar and other cases were followed, emphasizing consistency in judicial precedents.
2. Rejection of Revenue’s Objections
The Revenue argued that the assessees had neither raised the claim in their original returns nor filed revised returns, and that the scheme was purely voluntary, not a retrenchment. The Tribunal, however, considered the merits of the substantive claim. It observed that the Ld. CIT(A) had dismissed many appeals on procedural grounds (delay or failure to file revised returns), but the higher appellate authority could examine the correctness of the assessment order on merits to avoid multiplicity of litigation. Relying on the Bombay High Court’s decision in Vijay Vishin Meghani, the Tribunal emphasised substantial justice over procedural technicalities. The delay in filing appeals before the CIT(A) was condoned, and the new claim under Section 10(10B) was allowed to be raised for the first time, as it was a pure question of law arising from the same facts.
3. Application of Precedents
The Tribunal meticulously listed the decisions cited by the assessees, including Harish Kumar v. ITO (2025), Dayal Singh v. ITO, Suresh Pal Chauhan v. ITO (2023), Hindustan Photo Film Workers Welfare Centre (Madras HC), Shree Rajeshwar Sharma v. ITO, and Supreme Court rulings such as CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC). These authorities consistently held that compensation paid under a scheme for workforce reduction due to business revival qualifies as retrenchment compensation. The Tribunal rejected the Revenue’s contention that the “closure doctrine” was misapplied, noting that BSNL’s revival plan effectively involved closure of certain operations and forced retirement, satisfying the conditions of Section 10(10B).
4. Final Directions
The Tribunal allowed all appeals, setting aside the orders of the Ld. CIT(A). It directed the assessees to file revised computations of income before the respective Assessing Officers (AOs), who were instructed to grant refunds accordingly, if the taxes paid were found to be in excess. The order was pronounced on June 19, 2026, with the Bench clarifying that the relief was confined to the specific facts of these cases.
Conclusion
The ITAT Pune Bench’s consolidated order marks a significant victory for BSNL employees who opted for the VRS, 2019. By categorising the compensation as retrenchment compensation exempt under Section 10(10B), the Tribunal has ensured that the entire amount is treated as a capital receipt, thereby providing full tax relief. The decision also underscores the principle of judicial consistency by following coordinate bench rulings and prioritising substantive justice over procedural hurdles. It reinforces the position that government-sponsored revival plans involving workforce reduction lead to forced retirement, bringing the compensation within the protective ambit of Section 10(10B). As a result, the affected employees can now approach the Assessing Officer with revised computations to claim refunds of taxes already paid. This ruling is likely to have persuasive value for other tribunals and may influence future litigation on similar VRS payments.