A Pune Income Tax Appellate Tribunal (ITAT) ruling reportedly treated a former Pfizer employee’s Rs 65,21,105 plant-closure payment as a capital receipt, not taxable income. The employee had initially reported it as advance salary and claimed relief under section 89, but the reported appeal outcome rested on the character of the payment under that particular exit scheme—not on the original return label. The result is specific to one employee and scheme, and the tribunal order itself was not available for direct review.
What happened in the Rs 65.21 lakh case?
According to Mint’s report published July 21, 2026, Prakash Sukhdeo Sonawane worked at Pfizer Healthcare India’s Aurangabad plant. After the plant closed, the company offered the “Pfizer Healthcare India Private Limited Finance Scheme for Employees at Aurangabad, 2019.” The report says he received Rs 65,21,105 in FY 2018–19, made up of ex-gratia or severance pay, incentives and a notice-period payout.
In his return for assessment year (AY) 2019–20, Sonawane reportedly treated the payment as advance salary and sought section 89 relief. The Assessing Officer disallowed that relief. On appeal, the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre treated the payment as taxable under section 56(2)(xi), reasoning that it was received in connection with termination of employment.
Sonawane then argued before ITAT Pune that the scheme treated his departure as voluntary retirement or resignation, rather than employer-initiated termination. Mint reports that the tribunal accepted his position, set aside the appellate order and directed the Assessing Officer to modify the assessment. The report describes the scheme as not providing compensation or notice pay under the Industrial Disputes Act in the way a termination or retrenchment would.
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Why the return’s “advance salary” label did not decide the case
A label in an income-tax return does not, by itself, establish a payment’s tax treatment. The reported outcome turned on the tribunal’s view of the payment and the scheme’s terms, with the taxpayer arguing that the separation was voluntary and the receipt was capital in nature. Mint says that argument prevailed in this case. It does not report that section 89 relief was granted; the original section 89 claim had been rejected.
The underlying ITAT order and the full employer scheme were not directly reviewed for this account. Accordingly, the detailed legal reasoning and exact scheme language cannot be confirmed here, and no words should be treated as a verbatim judicial quotation.
How section 89 relief differs from the reported capital-receipt ruling
The Income Tax Department says section 89 relief may apply to specified payments, including salary or family pension received in arrears or in advance, certain gratuity, compensation on termination of employment and certain commuted pension. For other payment types, CBDT may consider relief case by case under Rule 21A(6). Whether relief is available depends on the payment’s legal character and the applicable conditions; calling a VRS or severance amount “advance salary” does not establish eligibility.
The Department’s section 89 guidance sets out the categories. Its Form 10E manual states: “Form 10E needs to be filed to claim such a relief.” The manual advises filing Form 10E before the income-tax return and includes annexures for salary in arrears or advance and specified compensation connected with termination of employment.
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Section 10(10C) is a separate VRS tax provision
Section 10(10C) provides a conditional exemption for qualifying voluntary-retirement or voluntary-separation payments, subject to statutory conditions and a formula. The Income Tax Department’s current general guide, which says it reflects the Finance Act 2026, states a Rs 5 lakh ceiling. That cap is a general statutory limit; it is not a finding that Sonawane qualified for the exemption or that his payment was assessed under section 10(10C).
Section 10(10C), section 89 relief, the section 56(2)(xi) treatment described in the appeal, and the argument that a receipt is capital in nature are distinct routes or characterizations. The reported result should not be read as merging them or as establishing that all VRS payments are tax-free.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What this case does—and does not—mean for other employees
The report concerns one employee, one plant closure and one employer scheme. Anyone comparing it with another severance or VRS payment should examine the relevant facts and legal route rather than rely on the headline.
- Exit terms: Did the scheme provide for voluntary resignation or retirement, or did the employer terminate or retrench the employee?
- Payment components: What do the scheme and settlement documents say about severance, incentives, notice pay and any other amounts?
- Tax year: Which statutory rules applied in the year the payment was received?
- Claim or argument: Is the issue section 89 relief, the section 10(10C) exemption, section 56(2)(xi), or whether a receipt is capital in nature?
- Decision status: Which court or tribunal decided the matter, and has the decision been appealed?
A separate Pune ITAT decision, Atul Madhukar Bhalerao, dated February 25, 2026, reportedly took a cautious view of treating VRS compensation as advance salary for section 89. It is a different case with its own facts and reasoning. Without comparing both primary orders and the applicable statutory context, the two reports do not establish a general conflict or a rule for all VRS payments.
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What to check before filing or changing a return
- Read the full separation scheme, offer and settlement documents. Identify how they describe the exit and each payment component.
- Determine the legal basis for the proposed tax treatment. Do not infer that section 89 applies merely because the payment is entered as advance salary.
- If claiming section 89 relief, check the Income Tax Department’s eligibility guidance and file Form 10E as required, preferably before filing the return.
- Assess section 10(10C) separately against its eligibility conditions and exemption formula. Do not assume that a VRS payment qualifies simply because it arose from a voluntary exit.
- For a disputed or substantial amount, seek advice based on the actual scheme, payment records and tax year. The reported Sonawane outcome is not a substitute for reviewing those documents or the tribunal order.
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