BSNL VRS ex-gratia compensation eligible for Section 10(10B) exemption subject to workman status verification.

By | September 25, 2026
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BSNL VRS ex-gratia compensation eligible for Section 10(10B) exemption subject to workman status verification.

Issue

Whether ex-gratia compensation received by BSNL employees under VRS-2019 qualifies for tax exemption as retrenchment compensation under Section 10(10B), and whether the matter needs verification by the Assessing Officer regarding individual eligibility conditions, including workman status.

Facts

  • Assessment Years: AY 2020-21 and AY 2021-22.
  • Assessee Status & Scheme: The assessees were employees of Bharat Sanchar Nigam Limited (BSNL) who opted for the Voluntary Retirement Scheme (BSNL VRS-2019) and received ex-gratia compensation.
  • Initial Claim & Processing: The assessees initially claimed exemption under Section 10(10C) of the Income-tax Act, 1961, and their returns of income were processed under Section 143(1).
  • Subsequent Claim & Appeals: The assessees later contended that the ex-gratia compensation received was fully exempt under Section 10(10B) and filed appeals against the Section 143(1) intimations.
  • Appellate Dismissal: The First Appellate Authority dismissed the appeals on the grounds of delay.

Decision

  • Eligibility for Exemption: It was held that compensation received by BSNL employees under VRS-2019 is in principle eligible for exemption under Section 10(10B) as retrenchment compensation. [Para 12] [In favour of assessee]
  • Remand for Factual Verification: The matter was restored to the file of the Assessing Officer to verify whether each respective assessee satisfies the statutory conditions under Section 10(10B), including whether they qualify as a “workman,” and to grant the exemption accordingly. [Para 12] [Matter remanded]

Key Takeaways

  1. Scope of Retrenchment Compensation: Ex-gratia compensation paid under a Voluntary Retirement Scheme (such as BSNL VRS-2019) can fall within the purview of Section 10(10B) exemption for retrenchment compensation.
  2. Workman Status Mandatory: Eligibility under Section 10(10B) requires factual verification to ensure the recipient satisfies the definition of a “workman” as governed by the relevant labor laws.
  3. Remand for Compliance Check: The tribunal/court can remand the matter to the Assessing Officer to examine supporting facts and grant relief in accordance with law, even if procedural delays occurred at lower appellate stages.
IN THE ITAT HYDERABAD BENCH ‘SMC’
Gudla Rao
v.
ITO
Ravish Sood, Judicial Member
and MADHUSUDAN SAWDIA, Accountant Member
IT Appeal Nos. 1489, 1490, 1491, 1492, 1497 and 1498 (Hyd) OF 2026
[Assessment years 2020-21 and 2021-22]
SEPTEMBER  23, 2026
T. Chaitanya Kumar and Shravani, Advs. for the Appellant. B Laxmi Kanth, Sr. AR for the Respondent.
ORDER
1. These six appeals filed by different assessees are directed against the separate orders passed by the Learned Addl/JCIT(A) relating to the assessment years 2020-21 & 2021-22, the details whereof are given in the cause title. Since identical facts and common issues are involved in all these six appeals, they were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. For the sake of brevity, the grounds raised by the assessee in ITA No.1489/Hyd/2026 for A.Y. 2020-21 are only reproduced as under:
Ground 1:
Denial of Exemption under Section 1O(1OB)
The learned Assessing Officer/CPC erred in law and on facts in treating the ex-gratia compensation received by the appellant under BSNL VRS-2019 as taxable income and in not granting full exemption under Section 10(1 OB) of the Income Tax Act, 1961. The appellant received a total VRS ex gratia amount of Rs. 26,89,798/-, out of which Rs. 8,41,915/- pertains to A.Y. 2020-21 and Rs. 18,47,883/- pertains to A.Y. 2021-22, which is in the nature of retrenchment compensation paid under a Central Government approved scheme and is fully exempt as per law. The action of the Assessing Officer/CPC is contrary to the statutory provisions and settled legal position.
1. Hindustan Photo Film Workers’ Welfare Centre (CITU) v. Government of India (W.P. Nos. 18566, 18788, 18608-18610 & 18789 of 2015, decided on 17.03.2017.

The Hon’ble Madras High Court), while upholding the VRS scheme, held that the compensation paid to employees constitutes special protection compensation in the nature of retrenchment compensation and is exempt under Section 10(10B) of the Income Tax Act, 1961, and accordingly, no tax is deductible on such payments. The ratio of the said judgment squarely supports the appellant’s claim for exemption.

2. Chandigarh in Harish Kumar v. ITO, Ward 5(5), Chandigarh (ITA No. 42/Chd/2025, A.Y. 2021-22, order dated 30.05.2025).

The Hon’ble TTAT, Chandigarh wherein it was held that the compensation received under BSNL VRS is in substance retrenchment compensation and is fully exempt under Section 10(1 OB) of the Income Tax Act, 1961, and accordingly the addition was deleted and the appeal of the assessee was allowed.

3. Jayeshkumar Tulsidas Sutaria v. ITO (ITA Nos. 2387 & 2388/Ahd/2025, order dated 17.02.2026).

The Hon’ble ITAT held that compensation received under BSNL VRS-2019 is eligible for exemption under Section 10(1 OB) of the Income Tax Act, 1961 even if such claim was not made in the return of income, and accordingly allowed the appeals with consequential relief including refund ofTDS.

4. Jayendra Bipinchandra Patel v. ITO (order dated 27.03.2026).

The Hon’ble IT AT held that the amount received under BSNL VRS-2019 is fully exempt under Section 10(1 OB) of the Income Tax Act, 1961 as retrenchment compensation and not taxable under Section 10(10C), and accordingly allowed the assessee’s appeal.

Ground 2:
Erroneous Processing under Section 143(1) and Denial of Lawful Exemption
The learned CPC, Bengaluru erred in law and on facts in processing the return under Section 143(1) by not granting even the exemption claimed and by mechanically treating the entire ex gratia compensation as taxable income, resulting in incorrect computation of total income and tax liability. The learned authorities further failed to appreciate that the appellant, due to incorrect professional advice, had claimed only partial exemption in the return, and that it is a settled principle of law that an assessee is entitled to claim the correct legal exemption at any stage of appellate proceedings. The denial of full exemption, despite the appellant being legally entitled to the same, is therefore arbitrary and contrary to law.
CIT v. Pruthvi Brokers & Shareholders (P) Ltd. (2012) 349 ITR 336 (Bom HC)
The Hon’ble Bombay High Court held that an assessee is entitled to raise additional claims before appellate authorities, even if not claimed in the return.
Ground 3: Erroneous Rejection of Condonation of Delay
The learned Commissioner of Income Tax (Appeals) erred in law and on facts in rejecting the condonation applications and dismissing the appeals in limine on the ground of delay of 1563 days for A.Y. 202021 and 1546 days for A.Y. 2021-22, without adjudicating the issues on merits. The learned CIT(A) failed to appreciate that, as per the settled doctrine, the cause of action accrues when the right to sue first arises, and in the present case, the appellant’s right to claim full exemption effectively arose only upon subsequent judicial clarification regarding the taxability of ex gratia received under BSNL VRS-2019. The learned CIT(A) further failed to adopt a liberal interpretation of “sufficient cause” as envisaged under Sections 249(3) and 253(5) of the Income Tax Act, 1961. It is well settled that where legal rights crystallize upon such later clarification, the delay deserves to be condoned in the interest of substantial justice. The rejection of
3. The common facts emerging from all the appeals are that the assessees were employees of Bharat Sanchar Nigam Limited (“BSNL”), a Public Sector Undertaking under the administrative control of the Department of Telecommunications, Government of India. Pursuant to the decision of the Union Cabinet for revival of BSNL by, inter alia, reducing employee costs, administrative allotment of spectrum for 4G services and other restructuring measures, BSNL introduced the Voluntary Retirement Scheme, 2019 (“VRS-2019”) for its employees aged 50 years and above by offering ex-gratia compensation. The assessees in the present batch of appeals opted for the said VRS-2019 and received ex-gratia compensation from BSNL during the relevant previous years corresponding to the assessment years under consideration. While making the payment, BSNL deducted tax at source. The assessees, while filing their returns of income for the respective assessment years, offered the ex-gratia compensation to tax after claiming exemption of Rs. 5,00,000/- under section 10(10C) of the Income-tax Act, 1961 (“the Act”). Consequently, the amount received in excess of Rs. 5,00,000/- was offered to tax. The returns of income of the assessee were processed by the Department under section 143(1) of the Act accepting the returned income without raising any demand.
4. Subsequently, the assessees came to know that the ex-gratia compensation received under BSNL VRS-2019 was fully exempt under section 10(10B) of the Act. Accordingly, they preferred appeals before the Learned Addl/JCIT(A) against the intimations issued under section 143(1) of the Act. However, there was a substantial delay ranging from about 1163 days to 1,583 days in filing these appeals before the Learned Addl/JCIT(A). However, the Learned Addl/JCIT(A) declined to condone the delay and dismissed the appeals in limine.
5. Aggrieved by the respective orders of the Learned Addl/JCIT(A), all the assessees are in appeal before this Tribunal. With regards to the delay before the Learned Addl/JCIT(A), the Learned Authorized Representative (“Ld. AR”) submitted that under identical facts and circumstances, this Tribunal, in a batch of 14 appeals in the case of Nizamuddin Gooty v. Addl/JCIT [IT Appeal Nos. 903, 904, 907 to 914, 921 to 924 (Hyd) of 2026, dated 3-7-2026] for A.Ys. 2020-21 & 2021-22, has condoned similar delays in filing the appeals before the Learned Addl/JCIT(A). The Ld. AR invited our attention to para nos. 10 and 11 of the said order wherein the Tribunal, relying upon the decisions of the Bangalore Bench of the Tribunal in the cases ofBasappa Balarama and Murthy Rangappa v. ITO [IT Appeal Nos.1342 and 1427 (Bang.) of 2026, dated 29-05-2026], condoned delays ranging from 1,114 days to 1,826 days. The Ld. AR further placed reliance upon the judgment of the Hon’ble Telangana High Court in the case of Sri Vissamsetty Ramakrishna v. Pr. CIT   (Telangana)/Writ Petition No.19498 of 2026 dated 15.07.2026, wherein under identical circumstances the Revenue had rejected the assessee’s application for condonation filed under section 119(2)(b) of the Act. The Hon’ble High Court, however, set aside the said order and held that the Revenue ought to have adopted a pragmatic and liberal approach while considering applications for condonation of delay where genuine hardship is established. Accordingly, the Ld. AR prayed that the delay in filing the appeals before the Ld. Addl/JCIT(A) be condoned.
6. On merits, the Ld. AR submitted that under identical facts, this Tribunal in the aforesaid batch of 14 appeals in the case of Nizamuddin Gooty (supra), has held that the compensation received by the employees of BSNL under VRS-2019 is eligible for exemption under section 10(10B) of the Act and directed the Learned Assessing Officer (“Ld. AO”) to grant the exemption after necessary verification. It was, therefore, prayed that similar relief be granted in the present batch of appeals.
7. Per contra, the Learned Departmental Representative (“Ld. DR”) supported the orders of the lower authorities. Without prejudice thereto, the Ld. DR submitted that even if the Tribunal comes to the conclusion that the compensation received under BSNL VRS-2019 is eligible for exemption under section 10(10B) of the Act, it still requires verification whether each individual assessee satisfies the conditions prescribed therein, particularly whether the concerned employee is a workman as contemplated under section 10(10B) of the Act. Accordingly, it was prayed that appropriate directions may be issued to the Ld. AO to verify the eligibility of each assessee before granting the exemption.
8. We have heard the rival submissions and perused the material available on record including the case laws relied upon. Insofar as the appeals in which the Learned Addl/JCIT(A) declined to condone the delay are concerned, we find that an identical issue has already been considered by this Tribunal in a batch of 14 appeals in the case of Nizamuddin Gooty (supra), wherein at para nos. 10 and 11 of the said order, the Tribunal has held as under:
10. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered a plethora of judicial precedents referred to by learned counsel for the assessees on this issue. Insofar as dismissal of the appeals filed by the assessees by the learned Addl/JCIT for the delay in filing the appeals, we find that, the very same issue has been considered by the Coordinate Bench of ITAT, Bengaluru in the case of Basappa Balarama and Murthy Rangappa (supra), and in para 15, the Tribunal has held as under:

“15. However, with respect to condonation of delay, the Id. AR submitted that the Id. CIT(A) should have condoned the delay as in the case of 72 cases before the Coordinate Benches across the country in the case of BSNL employees on identical facts and circumstances, delay has been condoned by the Id. CIT(A) itself ranging from 900 to 2000 days. The assessee has produced the list of 72 cases where the delay is condoned by the Id. CIT(A). Further in case of 144 appeals, the Coordinate Benches have condoned the delay in the case of BSNL employees on identical facts and circumstances. Thus on the parity itself, the appeal of the assessee should have been admitted by the Id. CIT(A). Accordingly, I reverse the order of the Id. CIT(A) in not condoning the delay.”

11. From the findings given by the Coordinate Bench of ITAT, Bengaluru, we find that, in an identical case of BSNL employees, the delay has been condoned by the learned Addl/JCIT himself in a number of cases, even though the delay was ranging between 900 days to 2000 days. The Tribunal further noted that, in more than 144 cases, the Coordinate Benches of the Tribunals have condoned the delay in the case of BSNL employees on identical facts and circumstances. Since the issue of condonation of delay in the case of BSNL employees has already been considered by various Benches of the Tribunal after examining the reasons given by them in the petitions filed for explaining the delay, in our considered view, by respectfully following the decision of the ITAT, Bengaluru Bench in the case of Basappa Balarama and Murthy Rangappa (supra), the delay in filing the present appeals before the learned Addl/JCIT ranging from 1,114 days to 1,826 days deserves to be condoned. Thus, we condone the delay in filing the appeals before the learned Addl/JCIT in all these cases.
9. On perusal of the above, we find that this Tribunal relying upon the decisions of the Bangalore Bench of the Tribunal in the cases of Basappa Balarama and Murthy Rangappa (supra) has condoned the delays ranging from 1,114 days to 1,826 days in filing the appeals before the Learned Addl/JCIT(A) . We have also carefully gone through the judgment of the Hon’ble Telangana High Court in the case of Sri Vissamsetty Ramakrishna (supra), wherein at para nos.6 to 9 of the order the Hon’ble High Court has held as under:
6. When we look into the averments made in respect of identical claims being allowed by the Benches of Income Tax Appellate Tribunal at Chandigarh, Ahmedabad, Pune, Mumbai, Indore and Bangalore, in identically placed BSNL retirees, this Court is of the considered view that when similar fact was brought to the notice of the respondentDepartment, the respondents ought to have appreciated the bona fides of the petitioner and the application filed by the petitioner under Section 119(2)(b) of the Act seeking condonation of delay to file revised ITRs for the Assessment Years 2020-21 and 2021-22, ought to have been considered by the respondent-Department with a more pragmatic and liberal approach, by appreciating the genuine hardship that the petitioner had been put to or would be put to, in case if the application seeking for condo-nation is not allowed.
7. A plain reading of the impugned order does not disclose whether respondent No.1 had considered and appreciated the orders passed by Benches of Income Tax Appellate Tribunal at Chandigarh, Ahmedabad, Pune, Mumbai, Indore and Bangalore, in identically placed BSNL retirees, and also by other Commissioner of Income Tax (Appeals) in its proper perspective, more particularly, when those orders have not been chal-lenged any further and they have attained finality.
8. To make things worse for the respondent-Department, learned counsel for the petitioner has produced before the Court another order passed by the Income Tax Appellate Tribunal, Hyderabad ‘SMC’ Bench, at Hyderabad, dated 03.07.2026, wherein in a batch of appeals the lead matter being I.T.A.Nos.903 and 904/HYD/2026, wherein similar view had been reiterated by the Bench. In the said judgment, it appears that similar view has also been followed earlier by the Income Tax Appellate Tribunal, Chennai Bench in the case of Shri Sekar Gnanaprakasam v. DCITJ and also by the Income Tax Appellate Tribunal, Bengaluru Bench in the case of Basappa Balarama and Murthy Rangappa v. Income Tax Officer, Ward 12, wherein the Coordinate Benches across the country have granted relief and condoned the delay.
9. For all the aforesaid said reasons and also taking into consideration the consistent view taken by various Benches of the Tribunal across the country, we are inclined to allow the instant writ petition. The impugned order passed by respondent No.1 under Section 119(2)(b) of the Income Tax Act, 1961 bearing DIN and Letter No.ITBA/COM/F/17/2026-27/1089643736(1), dated 12.06.2026, for the Assessment Years 2020-21 and 2021-22, stands quashed and set aside. The matter stands remitted to respondent No.1. The petitioner herein is permitted to file / submit revised Income Tax returns. Thereafter, the respondent No.1 is directed to consider the case of petitioner on merits.
10. On perusal of the above, we find that under substantially identical facts the Hon’ble High Court has held that the Revenue ought to have considered the condonation petition with a pragmatic and liberal approach, appreciating the genuine hardship suffered by the assessee if the delay were not condoned. Accordingly, the Hon’ble High Court condoned the delay. Respectfully following the aforesaid judgment of the Hon’ble Telangana High Court as well as the decision of this Tribunal, we condone the delay in filing the appeals before the Learned Addl/JCIT(A) in all such cases.
11. Coming to the merits of the issue, we find that the identical controversy has already been adjudicated by this Tribunal in the aforesaid batch of 14 appeals in the case of Nizamuddin Gooty (supra), wherein at para nos. 12 to 15 of the said order, the Tribunal has held as under:
12. Having said so, let us come back to the issue on hand. Admittedly, the assessees in the present bunch of appeals are employees of BSNL and opted for the Voluntary Retirement Scheme – 2019 and received compensation in two financial years relevant to the A.Ys. 2020-21 and 2021-22. It is also an admitted fact that the assessees in the present cases had filed their returns of income for A.Y. 2020-21 and offered the compensation received from BSNL to tax after claiming exemption of Rs.5,00,000/- u/s 10(10C) of the Act and the same has been accepted by the A.O. in the order passed u/s 143(1) of the Act. However, the assessees in the present cases have made a fresh claim of exemption towards 100% compensation received from BSNL under Voluntary Retirement Scheme – 2019, u/s 10(10B) of the Act, for the first time before the learned Addl/JCIT and the claims made by the assessees were rejected by the learned Addl/JCIT on technical grounds of not making the claim by filing revised returns in terms of the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra). In other words, in all these cases, the claims made by the assessees have been rejected without examining the merits of the claims in light of the provisions of section 10(10B) of the Income-tax Act, 1961.
13. The learned counsel for the assessees has cited a plethora of judicial precedents, including the decisions of various Benches of the Tribunals and we find that, in a number of cases, the Coordinate Benches of the Tribunal across the country have taken a consistent view and held that, compensation received by the employees of BSNL under the Voluntary Retirement Scheme – 2019 is exempt u/s 10(10B) of the Act, and further directed the A.O. to allow exemption in respect of 100% of the compensation received from BSNL u/s 10(10B) of the Act, by accepting the revised statement of total income filed by the assessees and also directed the A.O. to determine the tax payable/refundable as per law.
14. We further note that, the Coordinate Bench of the ITAT, Chennai Bench in the case of Shri Sekar Gnanaprakasam v. DCIT in ITA Nos.1608 & 1609/CHNY/2026, dated 21.05.2026, under an identical set of facts, held as under:

“11. We have heard the rival submissions and perused the material available on record, including the written submissions filed by the assessee and the judicial precedents relied upon. The short issue involved in the present appeals is whether the ex-gratia compensation received by the assessee under the BSNL VRS-2019 scheme is eligible for exemption u/s.10(10B) of the Act. From the materials placed before us, it is evident that the BSNL VRS-2019 scheme was formulated pursuant to the revival package approved by the Government of India and the Union Cabinet on 23.10.2019. It is further borne out from the records that the compensation payable under the scheme was funded through Government budgetary support. During the course of hearing, the assessee present submitted that though the nomenclature is mentioned as VRS, it is in effect a retrenchment scheme, since BSNL could not pay salary to employees just before rolling out the scheme. Therefore, the scheme partakes the character of a Government-approved retrenchment compensation scheme and cannot be treated as an ordinary voluntary retirement scheme simpliciter.

12. We further find that identical issue had come up for consideration before the Chandigarh Bench of the Tribunal in the case of Harish Kumar v. ITO, wherein the Tribunal held that the ex-gratia compensation received under BSNL VRS- 2019 is eligible for exemption u/s.10(10B) of the Act. Similar view has also been consistently taken by various appellate authorities across the country in the cases relied upon by the assessee. The Revenue has not brought on record any contrary judicial precedent to take a different view in the matter.

13. Considering the facts and circumstances of the case and respectfully following the judicial precedents cited supra, we hold that the ex-gratia compensation received by the assessee under the BSNL VRS-2019 scheme is eligible for exemption u/s.10(10B) of the Act. Consequently, the additions made by taxing the ex-gratia compensation are directed to be deleted. The AO is also directed to grant consequential relief, in accordance with law, in respect of exemption claimed u/s.10(10AA) of the Act, if otherwise found eligible.”

15. In this view of the matter and considering the facts and circumstances of the case and also by respectfully following the decisions of the Coordinate Benches of the Tribunals referred to hereinabove, we are of the considered view that, compensation received by the assessees in the present cases from BSNL under the Voluntary Retirement Scheme – 2019, is exempt u/s 10(10B) of the Act. Therefore, we direct the A.O. to verify the claim of the assessees in light of our findings given hereinabove and allow exemption claimed by the assessees for both the assessment years u/s 10(10B) of the Act, and determine the tax payable/refundable, if any, to the assessees as per law.
12. On perusal of the above, we find that this Tribunal has held that the compensation received by the employees of BSNL under the VRS-2019 is eligible for exemption under section 10(10B) of the Act and directed the Ld. AO to verify the claim and grant the exemption in accordance with law. Respectfully following the aforesaid decision of the Tribunal, we hold that the compensation received by the assessees from BSNL under VRS-2019 is eligible for exemption under section 10(10B) of the Act. At the same time, we find merit in the submission of the Ld. DR that the eligibility of each assessee is required to be verified with reference to the statutory requirement of section 10(10B) of the Act, particularly whether the concerned employee falls within the category of a workman contemplated under the said provision. Accordingly, we restore the matter to the file of the Ld. AO with a direction to verify whether the respective assessees satisfy the conditions prescribed under section 10(10B) of the Act, including whether they qualify as workman, and thereafter grant the exemption in accordance with law after providing reasonable opportunity of being heard to the assessees.
13. In the result, all the appeals of the assessees are allowed for statistical purposes in the terms of our above observation.