Central Government employee status for BSNL retirees supports exemption on voluntary retirement and leave encashment benefits.

Retirement compensation under the BSNL Voluntary Retirement Scheme, 2019, and leave encashment on retirement were examined for exemption under sections 10(10B) and 10(10AA) of the Income-tax Act in light of the assessee's absorption from the Department of Telecommunications and Rule 37A of the Central Civil Services (Pension) Rules. The Tribunal treated such absorbed BSNL employees as a distinct class for pensionary and retirement benefits, and held that they were to be regarded as Central Government employees for the claimed exemptions. Applying harmonious construction, it found that administrative treatment could not restrict the statutory relief where the governing service rules preserved Central Government status for retirement benefits, and the exemptions were allowed accordingly.

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Issues: Whether the amount received under the BSNL Voluntary Retirement Scheme, 2019, along with leave encashment on retirement, was required to be treated as benefits available to a Central Government employee for the purpose of exemption under section 10(10B) and section 10(10AA) of the Income-tax Act, 1961.

Analysis: The dispute turned on the nature of the assessee's retirement from BSNL after absorption from the Department of Telecommunications and the effect of Rule 37A of the Central Civil Services (Pension) Rules. The Tribunal followed coordinate bench decisions and the Kerala High Court's view that such employees form a distinct class and, for pensionary and retirement benefits, are to be treated as Central Government employees. It applied the principle of harmonious construction to avoid reading the tax provisions in a manner that defeats the protection available under the service rules, and accepted that executive or administrative treatment could not curtail the statutory exemption where the governing regime treated the retirement as one from Central Government service.

Conclusion: The assessee was entitled to be treated as a Central Government employee for the claimed exemptions, and the retirement compensation and leave encashment benefits were directed to be allowed accordingly. The appeal was allowed.

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