Retrenchment compensation classification governs closure-linked employee separation payments, making them eligible for exemption rather than voluntary retirement treatment.

Compensation paid to a workman upon closure of an employer's unit under a closure-linked VRS/VSS package is treated as retrenchment compensation under the explanation to section 10(10B). The package's description as voluntary retirement, voluntary separation, or ex gratia does not alter its essential character where the separation results from the unit's closure. Accordingly, the payment qualifies for exemption under section 10(10B), rather than being treated as voluntary retirement compensation under section 10(10C).

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Issues: Whether the amount received by an employee upon closure of the employer's unit under a VRS/VSS package constituted retrenchment compensation exempt under section 10(10B), rather than voluntary retirement compensation subject to section 10(10C).

Analysis: The Kota unit was closed pursuant to a Government decision, and the separation package was introduced in connection with that closure. Compensation received by a workman at the time of closure is deemed to be retrenchment compensation under the explanation to section 10(10B). The description of the package as VRS/VSS or ex gratia did not alter its essential character. The approved closure-linked scheme and the applicable precedent supported treatment of the payment as compensation arising from retrenchment rather than voluntary retirement.

Conclusion: The payment was retrenchment compensation eligible for exemption under section 10(10B); the addition was deleted in favour of the assessee.

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