My client took the package when HMT's Tractor Division was closed. CPC allowed only Rs 5 lakh under s.10(10C) and then refused s.89 relief because of it. Is the whole package exempt?
On these facts yes. Where the Central Government approves a scheme for extending special protection to workmen of an undertaking being closed down, the second proviso to s.10(10B) displaces the monetary ceiling and the whole of the compensation is exempt. The Chandigarh Bench held the HMT Tractor Division package fell under s.10(10B) and not s.10(10C), and separately directed that s.89 relief be allowed on the net gratuity.
Decided by the ITAT (Shri Aakash Deep Jain, Vice President and Shri Vikram Singh Yadav, Accountant Member (ITAT, 'A' Bench, Chandigarh)) on 2023-09-20, reported as ITA Nos. 83/Chd/2023, 622/Chd/2022, 598/Chd/2022, 45/Chd/2023 and 1/Chd/2023, assessment year 2017-18. It bears on section 10(10B), section 10(10C), section 89, section 10(10), section 17(1) of the Income Tax Act 1961, in Capital Gains Exemptions, Salary & Perquisites and Appeals matters.
This decides which of two exemptions applies, and the difference is the difference between Rs 5,00,000 and the entire package — here Rs 36,07,576. The test the Bench gave is a usable one: look at the nature and intent of the scheme. If it exists to give special protection to workmen of an undertaking that is being closed down, it is s.10(10B) territory and the second proviso removes the cap; if it exists to reduce headcount in an undertaking that will continue to operate, it is s.10(10C) and rule 2BA and the Rs 5,00,000 ceiling apply. That the employee signed a form headed 'VRS' does not settle it — the whole HMT scheme was announced by the Cabinet as part of a closure, with retrenchment under the Industrial Disputes Act 1947 as the alternative for anyone who did not opt in, and the Explanation to s.10(10B) deems compensation received on the closing down of an undertaking to be compensation received on retrenchment. Note two further points a CIT(A) is likely to raise and this Bench rejected in the material it approved: the scheme need not be notified in the Official Gazette, the second proviso requiring only that the Central Government 'approve' it; and the yardstick of 'workman' under the Industrial Disputes Act was not applied to exclude officers where the Government's own announcement drew no such distinction. The s.89 point matters just as much. The assessee's grievance was that relief under s.89 had been disallowed because the s.10(10C) exemption had been allowed — that is the statutory position from assessment year 2010-11, the proviso to s.89 barring relief on a voluntary retirement, termination or voluntary separation amount where the s.10(10C) exemption is claimed, and the third proviso to s.10(10C) forfeiting the exemption where s.89 relief is allowed. Moving the receipt out of s.10(10C) and into s.10(10B) takes it outside both provisos, which is why s.89 relief on the gratuity could then be directed. It never was a case of claiming s.10(10C) and s.89 together.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee was an employee of HMT Ltd, Tractor Division, Pinjore. The Union Cabinet, at its meeting of 27 October 2016, approved budgetary support to HMT Ltd for outstanding salary, wages and other employee dues and the closure of the Tractor Division by offering an improved VRS/VSS package computed on 2007 notional pay scales in relaxation of the Department of Public Enterprises guidelines, with a cash outgo of about Rs 718.72 crore; the approval recorded that employees not opting for VRS would be retrenched under the Industrial Disputes Act 1947 as the division was proposed to be closed down. The administrative ministry communicated this by letter dated 4 November 2016 and HMT Ltd issued office order No. 15/16 of the same date introducing the scheme as a one-time benefit for all permanent employees on the rolls of the Tractor Division. In financial year 2016-17 the assessee received salary of Rs 5,16,318, voluntary retirement compensation of Rs 36,07,576, gratuity of Rs 10,00,000 and leave encashment of Rs 3,61,386. His revised return of 5 December 2017 declared Rs 37,78,890 after claiming Rs 5,00,000 under s.10(10C) against the compensation, exemptions on gratuity and leave encashment as per Form 16, and relief under s.89 of Rs 3,11,129 on the gratuity and the compensation. The s.89 relief was disallowed on the footing that the s.10(10C) exemption had been allowed, and the CIT(A), NFAC upheld the assessment. Before the Tribunal the assessee contended that the whole compensation was exempt under s.10(10B) as received on forced retrenchment on closure under a scheme approved by the Central Government, and not under s.10(10C).
The appeals were allowed. The assessee was held eligible for exemption under s.10(10B) on the whole of the voluntary retirement compensation of Rs 36,07,576 and the Assessing Officer was directed to allow relief accordingly. Where the scheme is specifically approved by the Central Government and compensation is paid under it, the second proviso to s.10(10B) displaces the five-lakh limitation and the whole of the compensation received is exempt. On the separate ground, since s.89 speaks of an assessee in receipt of a sum in the nature of salary and gratuity is salary under s.17(1)(iii), the Assessing Officer was directed to provide appropriate relief under s.89 in respect of the net gratuity brought to tax after excluding the exemption claimed under s.10(10).
The Bench set out ss.10(10B) and 10(10C) and rule 2BA and read them against each other. Section 10(10B) covers compensation received by a workman at the time of retrenchment; the Explanation deems compensation received on the closing down of the undertaking to be compensation received on retrenchment; and the compensation need not be determined under the Industrial Disputes Act, the clause extending to any other Act, rules, orders, standing orders, award, contract of service or otherwise. The first proviso caps the exemption, but the second proviso disapplies that cap where the compensation is received under a scheme the Central Government approves having regard to the need for extending special protection to the workmen in the undertaking. Section 10(10C), by contrast, addresses amounts received on voluntary retirement or separation under a scheme framed in accordance with prescribed guidelines and caps the exemption at five lakh rupees. The Bench identified the fundamental differentiation as lying in the nature and intent of the scheme — special protection to workmen where the undertaking is being closed down, as against reduction in the existing strength of an undertaking that continues to operate. It then applied the Madras High Court's decision in Hindustan Photo Films Workers, reproduced at length, where a non-plan budgetary support approved by the Cabinet Committee on Economic Affairs to rehabilitate the employees of a Government company was held to qualify under s.10(10B), the nature of the benefit being tested on the plain language of the scheme without adding any interpretation, and where the Court declined to distinguish officers from workmen because the Government's own announcement drew no such distinction. Turning to the record, the Bench examined the Cabinet press note of 27 October 2016, HMT's office order of 4 November 2016 and the ministry's sanction letter of the same date, and approved a series of orders of the CIT(A) in the cases of other HMT employees — Prem Pal, Karam Pal, Raj Kumar Singh and Kedar Singh Mewari — which had allowed the exemption on the same reasoning, one of them holding expressly that the second proviso contains no requirement of Gazette notification and that the Assessing Officer could not read one in. It recorded that those orders had not been challenged by the Revenue and that the CIT(A) in the present case had failed to take cognisance of them, so that consistency also required the matter to be decided in the assessee's favour.
However, in case, where the scheme is specifically approved by the Central Government and the compensation is paid as per the scheme so approved, the limitation on quantum of exemption to the extent of five lakh rupees shall not apply and thus, whole of the compensation so received shall be exempt.
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Handle my notice → Ask a CA on WhatsAppOn these facts yes. Where the Central Government approves a scheme for extending special protection to workmen of an undertaking being closed down, the second proviso to s.10(10B) displaces the monetary ceiling and the whole of the compensation is exempt. The Chandigarh Bench held the HMT Tractor Division package fell under s.10(10B) and not s.10(10C), and separately directed that s.89 relief be allowed on the net gratuity. This was decided by the ITAT (Shri Aakash Deep Jain, Vice President and Shri Vikram Singh Yadav, Accountant Member (ITAT, 'A' Bench, Chandigarh)) and bears on section 10(10B), section 10(10C), section 89, section 10(10), section 17(1) of the Income Tax Act 1961. It is reported as ITA Nos. 83/Chd/2023, 622/Chd/2022, 598/Chd/2022, 45/Chd/2023 and 1/Chd/2023, assessment year 2017-18. This decides which of two exemptions applies, and the difference is the difference between Rs 5,00,000 and the entire package — here Rs 36,07,576. The test the Bench gave is a usable one: look at the nature and intent of the scheme. If it exists to give special protection to workmen of an undertaking that is being closed down, it is s.10(10B) territory and the second proviso removes the cap; if it exists to reduce headcount in an undertaking that will continue to operate, it is s.10(10C) and rule 2BA and the Rs 5,00,000 ceiling apply. That the employee signed a form headed 'VRS' does not settle it — the whole HMT scheme was announced by the Cabinet as part of a closure, with retrenchment under the Industrial Disputes Act 1947 as the alternative for anyone who did not opt in, and the Explanation to s.10(10B) deems compensation received on the closing down of an undertaking to be compensation received on retrenchment. Note two further points a CIT(A) is likely to raise and this Bench rejected in the material it approved: the scheme need not be notified in the Official Gazette, the second proviso requiring only that the Central Government 'approve' it; and the yardstick of 'workman' under the Industrial Disputes Act was not applied to exclude officers where the Government's own announcement drew no such distinction. The s.89 point matters just as much. The assessee's grievance was that relief under s.89 had been disallowed because the s.10(10C) exemption had been allowed — that is the statutory position from assessment year 2010-11, the proviso to s.89 barring relief on a voluntary retirement, termination or voluntary separation amount where the s.10(10C) exemption is claimed, and the third proviso to s.10(10C) forfeiting the exemption where s.89 relief is allowed. Moving the receipt out of s.10(10C) and into s.10(10B) takes it outside both provisos, which is why s.89 relief on the gratuity could then be directed. It never was a case of claiming s.10(10C) and s.89 together. If it applies to you, the first step is this: Get the Cabinet approval and the administrative ministry's sanction letter on record — the press note, the budgetary-support letter and the company's office order introducing the scheme; the entire reasoning runs off those three documents.
The assessee was an employee of HMT Ltd, Tractor Division, Pinjore. The Union Cabinet, at its meeting of 27 October 2016, approved budgetary support to HMT Ltd for outstanding salary, wages and other employee dues and the closure of the Tractor Division by offering an improved VRS/VSS package computed on 2007 notional pay scales in relaxation of the Department of Public Enterprises guidelines, with a cash outgo of about Rs 718.72 crore; the approval recorded that employees not opting for VRS would be retrenched under the Industrial Disputes Act 1947 as the division was proposed to be closed down. The administrative ministry communicated this by letter dated 4 November 2016 and HMT Ltd issued office order No. 15/16 of the same date introducing the scheme as a one-time benefit for all permanent employees on the rolls of the Tractor Division. In financial year 2016-17 the assessee received salary of Rs 5,16,318, voluntary retirement compensation of Rs 36,07,576, gratuity of Rs 10,00,000 and leave encashment of Rs 3,61,386. His revised return of 5 December 2017 declared Rs 37,78,890 after claiming Rs 5,00,000 under s.10(10C) against the compensation, exemptions on gratuity and leave encashment as per Form 16, and relief under s.89 of Rs 3,11,129 on the gratuity and the compensation. The s.89 relief was disallowed on the footing that the s.10(10C) exemption had been allowed, and the CIT(A), NFAC upheld the assessment. Before the Tribunal the assessee contended that the whole compensation was exempt under s.10(10B) as received on forced retrenchment on closure under a scheme approved by the Central Government, and not under s.10(10C). The matter was decided on 2023-09-20 by the ITAT (Shri Aakash Deep Jain, Vice President and Shri Vikram Singh Yadav, Accountant Member (ITAT, 'A' Bench, Chandigarh)). On those facts the ITAT held as follows. The appeals were allowed. The assessee was held eligible for exemption under s.10(10B) on the whole of the voluntary retirement compensation of Rs 36,07,576 and the Assessing Officer was directed to allow relief accordingly. Where the scheme is specifically approved by the Central Government and compensation is paid under it, the second proviso to s.10(10B) displaces the five-lakh limitation and the whole of the compensation received is exempt. On the separate ground, since s.89 speaks of an assessee in receipt of a sum in the nature of salary and gratuity is salary under s.17(1)(iii), the Assessing Officer was directed to provide appropriate relief under s.89 in respect of the net gratuity brought to tax after excluding the exemption claimed under s.10(10).
The Bench set out ss.10(10B) and 10(10C) and rule 2BA and read them against each other. Section 10(10B) covers compensation received by a workman at the time of retrenchment; the Explanation deems compensation received on the closing down of the undertaking to be compensation received on retrenchment; and the compensation need not be determined under the Industrial Disputes Act, the clause extending to any other Act, rules, orders, standing orders, award, contract of service or otherwise. The first proviso caps the exemption, but the second proviso disapplies that cap where the compensation is received under a scheme the Central Government approves having regard to the need for extending special protection to the workmen in the undertaking. Section 10(10C), by contrast, addresses amounts received on voluntary retirement or separation under a scheme framed in accordance with prescribed guidelines and caps the exemption at five lakh rupees. The Bench identified the fundamental differentiation as lying in the nature and intent of the scheme — special protection to workmen where the undertaking is being closed down, as against reduction in the existing strength of an undertaking that continues to operate. It then applied the Madras High Court's decision in Hindustan Photo Films Workers, reproduced at length, where a non-plan budgetary support approved by the Cabinet Committee on Economic Affairs to rehabilitate the employees of a Government company was held to qualify under s.10(10B), the nature of the benefit being tested on the plain language of the scheme without adding any interpretation, and where the Court declined to distinguish officers from workmen because the Government's own announcement drew no such distinction. Turning to the record, the Bench examined the Cabinet press note of 27 October 2016, HMT's office order of 4 November 2016 and the ministry's sanction letter of the same date, and approved a series of orders of the CIT(A) in the cases of other HMT employees — Prem Pal, Karam Pal, Raj Kumar Singh and Kedar Singh Mewari — which had allowed the exemption on the same reasoning, one of them holding expressly that the second proviso contains no requirement of Gazette notification and that the Assessing Officer could not read one in. It recorded that those orders had not been challenged by the Revenue and that the CIT(A) in the present case had failed to take cognisance of them, so that consistency also required the matter to be decided in the assessee's favour. In the words reproduced by the source cited on this page: "However, in case, where the scheme is specifically approved by the Central Government and the compensation is paid as per the scheme so approved, the limitation on quantum of exemption to the extent of five lakh rupees shall not apply and thus, whole of the compensation so received shall be exempt." The decision followed or applied Hindustan Photo Film Workers' Welfare Centre (CITU) v. Government of India (Madras High Court, W.P. No.18566 of 2015 and connected matters) — applied at length; the order records that the Union's special leave petition was dismissed.
It was decided by the ITAT on 2023-09-20 and is reported as ITA Nos. 83/Chd/2023, 622/Chd/2022, 598/Chd/2022, 45/Chd/2023 and 1/Chd/2023, assessment year 2017-18. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 10(10B), section 10(10C), section 89, section 10(10), section 17(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were allowed. The assessee was held eligible for exemption under s.10(10B) on the whole of the voluntary retirement compensation of Rs 36,07,576 and the Assessing Officer was directed to allow relief accordingly. Where the scheme is specifically approved by the Central Government and compensation is paid under it, the second proviso to s.10(10B) displaces the five-lakh limitation and the whole of the compensation received is exempt. On the separate ground, since s.89 speaks of an assessee in receipt of a sum in the nature of salary and gratuity is salary under s.17(1)(iii), the Assessing Officer was directed to provide appropriate relief under s.89 in respect of the net gratuity brought to tax after excluding the exemption claimed under s.10(10). It arises in Capital Gains Exemptions, Salary & Perquisites and Appeals matters, on section 10(10B), section 10(10C), section 89, section 10(10), section 17(1) of the Income Tax Act 1961, and was decided by Shri Aakash Deep Jain, Vice President and Shri Vikram Singh Yadav, Accountant Member (ITAT, 'A' Bench, Chandigarh). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show the scheme's purpose is closure and protection of the workforce, not headcount reduction in a continuing business; the strongest single fact here was that employees who did not opt in were to be retrenched under the Industrial Disputes Act because the division was to be closed. Rely on the Explanation to s.10(10B): compensation received on the closing down of the undertaking is deemed to be compensation received on retrenchment, so the absence of a formal retrenchment order does not defeat the claim. Meet the 'not notified in the Official Gazette' objection by pointing to the words of the second proviso, which require only approval by the Central Government, and not notification. Claim s.89 relief on the net gratuity — gratuity is salary under s.17(1)(iii) — but do not claim s.89 relief and the s.10(10C) exemption on the same voluntary retirement amount for any year from assessment year 2010-11; they are alternatives and claiming relief forfeits the exemption. If the CIT(A) has decided the identical point for other employees of the same employer and not been appealed by the Revenue, put those orders on record; the Bench treated that as a consistency point in the assessee's favour.
Still good law. Followed by the same Bench in Satinder Paul v. ITO, ITA No.136/CHD/2025, order dated 30 October 2025, which was read in full for this entry and which reproduces paragraphs 6 to 27 of this order and applies them to another HMT Tractor Division employee for the same assessment year. Whether the Revenue has appealed against either order was not ascertained, and no High Court decision on this order was located; the search was confined to indiankanoon. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a consolidated order in five appeals, of which ITA No.83/Chd/2023 was the lead case. The order was read in two passes: the header and paragraphs 1 to 5, 10 to 12 and 23 to 25 were fetched directly, and the whole of paragraphs 6 to 27 was separately read as reproduced verbatim in the same Bench's later order in Satinder Paul v. ITO, ITA No.136/CHD/2025 dated 30 October 2025, which was fetched in full; the two readings agree word for word on the passages common to them. Both renderings garble '10(10B)' as '10(108)' in several places where the sense is plain, and the reproduction of s.10(10B) inside the Madras High Court extract prints the floor in clause (ii) of the first proviso as 'Rs. Five lakhs' whereas the section itself, on the Income Tax Department's published text, reads 'fifty thousand rupees' — that clause fixes a floor below which the Central Government may not notify, and the amount actually notified, treated throughout the order as Rs 5,00,000, was not verified against a notification for this entry. Paragraph 4 records the VRS compensation as Rs 36,07,576 while ground 4 as reproduced states Rs 36,07,536; the operative direction in paragraph 24 uses Rs 36,07,576. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed. The assessee was held eligible for exemption under s.10(10B) on the whole of the voluntary retirement compensation of Rs 36,07,576 and the Assessing Officer was directed to allow relief accordingly. Where the scheme is specifically approved by the Central Government and compensation is paid under it, the second proviso to s.10(10B) displaces the five-lakh limitation and the whole of the compensation received is exempt. On the separate ground, since s.89 speaks of an assessee in receipt of a sum in the nature of salary and gratuity is salary under s.17(1)(iii), the Assessing Officer was directed to provide appropriate relief under s.89 in respect of the net gratuity brought to tax after excluding the exemption claimed under s.10(10).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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