Retrenchment compensation exemption turns on the real nature of termination-linked settlement payments, not the label used.

Compensation received on cessation of employment may qualify as retrenchment compensation under section 10(10B) where the real nature of the settlement shows termination-linked payment after an industrial dispute, rather than mere reliance on its label. On the stated facts, the payment was treated as compensation connected with cessation of service and therefore eligible in principle for exemption. However, the statutory ceiling for exemption, including the computation under section 25F of the Industrial Disputes Act, 1947, had not been verified, so the matter was remitted to the Assessing Officer for limited examination of the exempt quantum.

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Issues: Whether the amount received on cessation of employment was eligible for exemption under section 10(10B) of the Income-tax Act, 1961 as retrenchment compensation.

Analysis: The payment was made pursuant to a settlement following an industrial dispute and cessation of service. The controlling question was not the label used in the settlement but the real nature of the arrangement. On the facts, the payment was treated as compensation linked to termination of employment and therefore capable of falling within the scope of retrenchment compensation. However, the statutory ceiling for exemption under section 10(10B), including the computation under section 25F of the Industrial Disputes Act, 1947, had not been examined.

Conclusion: The assessee was entitled to the claim in principle, but the matter was remitted to the Assessing Officer for limited verification of the quantum of exemption.

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