ITAT Allows Section 10(10B) Exemption to BSNL VRS Employee Despite Wrong Claim Under Section 10(10C):

The assessee is an individual and BSNL employee who opted for retirement under the BSNL Voluntary Retirement Scheme, 2019, formulated as part of the restructuring of BSNL and reduction of its workforce. The assessee, aged around 50 years, received compensation under the scheme in four equal instalments, with three instalments received during FY 2020-21 relevant to AY 2021-22.

BSNL deducted tax at source while making the payments. Consequently, the assessee initially believed that the compensation was taxable and claimed exemption of Rs. 5 lakh under Section 10(10C) of the Income Tax Act, offering the balance as taxable income. The assessee sought the benefit of Section 10(10B).

The CIT(A) condoned the delay in filing the appeal but dismissed the claim on merits. According to the CIT(A), Section 10(10B) applied to retrenchment compensation received under the Industrial Disputes Act, 1947, whereas Section 10(10C) concerned payments received under a voluntary retirement scheme. 

The assessee submitted that several ITAT Benches had already held that retrenchment compensation received by BSNL employees under the VRS, 2019 was eligible for exemption under Section 10(10B). It was argued that the exemption had been claimed under Section 10(10C) only due to a mistaken understanding of the applicable provision, particularly as BSNL had deducted TDS from the compensation.

The Tribunal noted that similar cases involved delayed claims or claims made under an incorrect provision because the employer had deducted TDS from the payments. Importantly, the Tribunal observed that the Revenue had not disputed the assessee's substantive entitlement to the exemption. Following the earlier Coordinate Bench decisions and noting that no further proceedings had been pursued by the Revenue against those decisions, the Bangalore Tribunal held that the issue was covered in favour of the assessee.

Accordingly, the Tribunal allowed the appeal and granted the assessee the benefit of exemption under Section 10(10B) of the Income Tax Act in respect of the retrenchment compensation received under the BSNL VRS, 2019.