What are the charges collected by the Society?

By Legal Bureau

The apportion of the share of each member towards the charges of the society shall be on the following basis:-
1. Property taxes:- As fixed by Local Authority on the basis of the ratable value of the flat/ shop per sq.ft and should be collected according. If the property tax is collected by the Authorities individually in respect of each flat/shop no charges should be collected by the society.
2. Water charges:- On the basis of total number and size of the inlets provided in each flats.
3. Common Electricity charges:- Equally for all flats.
4. Contribution to Repairs and Maintenance of the building/ Buildings of the Society:- At the rate fixed at the General Body from time to time, subject to the minimum of 0.75%per annum of the construction cost of each flat for meeting expenses of normal recurring repairs.
5. Expenses on Repairs and Maintenance of the lifts of the society including charges for running the lift:- Equally by all the members of the building in which lift is provided, irrespective of the fact whether they use lift or not.
6. Contribution to Sinking Fund:- As provided under Bye-laws No.13 (c), at the rate decided at the meeting of the General Body, subject to the minimum of 0.25 percent per annum of the construction cost of each flat, including the proportionate cost of the land.
7. Service Charges:- Equally divided by the number of flats/shops/unit.
8. Car Parking Charges:- At the rate fixed by General Body of the Society at its meeting under the bye-laws No.84/85.
9. Interest on the Delayed payment of charges:- At the simple rate not exceeding 21% fixed under Bye-laws No.72 to be recovered from defaulter members.
10. Repayment of the Installment of the loan and interest:- the amount of each installment with interest as fixed by the financing agency.
11. Non Occupancy Charges:- As per the bye-laws No. 43 (2)(iii)(c ), the members shall pay non occupancy charges to the society at such rate as is decided by the meeting of the General Body of the society. non occupancy charges should not be more than 10% of service charges.
12. Insurance Charges:- The built-up area of each flat, provided that if there is increase in the insurance premium due to storing any specific goods in any flat, used for commercial purpose, the extra burden of insurance premium shall be shared by those who are responsible such increased premium in proportion to the built up area of their flats.
13. Lease Rent:- The built-up area of each flat.
14. Non Agricultural Tax: – The built-up area of each flat.

Expenses for the lift has to be shared by all the members

By : late Mr. K.C.VAJIFDAR
Mr. S.B.Bhinde a shopkeeper and full fledged member of Housing Co-operative Society has written to me to know whether a society can now all of a sudden recover lift charges when especially he has not paid for the same for the last 14 years. Mr. Bhinde. Writes that the Society is not ready to listen to the shopkeepers and garage owners at all in this matter. A very important question is when the shopkeepers and garage owners who are the member of the society and who have been given the share certificates and those who do business from the ground floor of the building are liable or not pay for the lift expenses in a Society ?
Most of the Societies do not recover expenses relating to lifts from shopkeepers and garage owners . Some Societies do not recover lift expenses even from members residing on the ground floor stating that such members do not use the facility of lifts at all.

In many buildings the shops are located in the front portion of the building and the building for residence is built at a distance of 50 to 100 feet. However the Society is name for both shopkeepers and the members residing in the building . Often the shopkeepers do not even see the face of the lift as there is considerable distance between the shop and the lift .Lately many Societies have adopted the Model Bye-law and it is indicated in section 71(A)(5) that all members will have to bear the expenses of lift equally. Whether the member uses the lift or not, would not matter at all. It is also mentioned in the same section that the expenses of the salary of the liftmen, running the lift , electricity expenses etc. should be paid equally by all members. Moreover when the society has to spend heavily to get the lift repaired the expenses for the same should be borne equally by all members .

When a lift goes out of order and it has to be repaired, the society may have to spend lakh of rupees. How can the society recover from a member who is not using the lift facility to contribute towards such heavy charges ?
Most of the shopkeepers and the garage owners register their strong protest over this issue .Many shopkeepers and garage owners remove items of expenditure on lift from maintenance bill and show willingness to pay only the rest of the bill . Now the question is that once a society has adopted the Model Bye-laws then whether it is incumbent upon every member including shopkeepers , garage owners and members residing on the ground floor and first floor to pay for such charges ? It is to be remembered that while paying such a bill if the member refuses to pay charges for lift expenses, the society is not bound to accept the bill at reduced rate? Once the member is given a bill, it is his responsibility to pay the full amount. The society is not bound to accept the reduced amount.

Now suppose due to this dispute , if a member does not pay full maintenance bill has the society any remedy for the same ? Certainly . A society can serve a notice upon such a member under section 101 of the Maharashtra Co-operative Society Act. On receiving this notice, if the member does not pay full maintenance bill then the society can get a certificate from the Registrar under section 101 of the Maharashtra Co-operative Society Act. Once this certificate is given to the society by the registrar, the society has to give a second notice to member concerned. If the member still does not pay the maintenance bill in full, then the Registrar may assign tax recovery officer who will take charge of all items in the members flat and may auction them to recover the amount due to the society . If the society’s maintenance bill has gone up to the extent that it cannot be recovered by auctioning all the items in the members premises then he may even auction the flat, shop or garage and recover the entire dues for the society.

For this reason, it is may sincere advice that if the society has adopted the Model Byelaws the shopkeepers , garage owner or the member of the first and ground floors should pay for lift expenses .

Levy of Charges / contribution towards out goings of the society

By Ramesh S.Prabhu (Chartered Accountant)

The contribution to be collected from the members of the society towards outgoing and establishment of its funds may be in the relation to the following : –

Basis for collection of charges
Normally above charges are collected / billed according to the following basis.

Service Charges (Regular maintainance Charges)
Bye Law No.70 of the model Bye law has clearly specified that the following expenses / outgoing constitute service charges which should be equally divided by the number of flats/ shops/ galas irrespective of the are of such units.
The salaries of the office staff, liftmen, watchmen, mallis, and any other employees of the society.
Where the society has independent office, the property taxes, electricity charges, water charges etc., for the same.
Printing and stationery and postage.
Travelling allowance and conveyance charges to the staff members of the society for attending an any particular meeting.
Sitting fees paid to the members of the committee of the of the society for attending an any particular meeting.
Subscription to the education fund of the Maharashtra Rajya Sahakari Sangh Ltd.
Annual subscription of the housing federation and any other co-operative institutions to which the society is affiliated.
Entrance fees paid for affiliation of the Housing Federation and any other co-operative institutions.
Audit fees for internal, statutory and re-audit if any.
Expenses incurred at the meeting of the general body, the committee and the sub-committee, if any.
Retainer fees, legal charges, statutory enquiry fees and
Any other charges approved by the general body at its meeting like cables charges, celebration expenses etc.,
Every Society / Managing Committee should prepare budget for each year in the annual General body meeting for common expenses stated above and the approval in the General body meeting should be taken to divided equally among all the Flats / shops etc. Some societies divide the above service charges on the basis of Square feet which is bad in law as they are not within the preview of the bye-law. The Bye law No.111 states that General Body is the Supreme Authority within the provisions of Act, Rules and Bye-law of the society. Accordingly, the general body cannot take the decision beyond the provisions of the bye-law.

Property Tax
Normally such charges are fixed by the local authority on the basis of rateable value of the flat / shop per sq.ft. and accordingly it should be collected. Where the authorities individually in respect of each flat/shop no charges should be collected by the society to collect the property tax.

Water Charges
All the societies are free to operate in independent manner in the interest of the members within the provisions of Act, rules and the bye-laws of the society.
In respect of levy of water charges, model bye law no 71 (A) (2) Provides that water charges should be recovered based on the number of taps, push cock, turn cocks, mixing taps, flash taps and shower taps of the individual flat / shop.
The above produce seems to be not justified as more taps does not lead to more consumption of water if defective or not installed, the general body may decide the levy of water charges on the number of persons occupying the flat/shop. Some instances have come to the notice that some societies charges on equal basis irrespective of persons staying the flat.
To have a fair deal and to please all the members the society may adopt the following produce by passing appropriate resolution in the general body meeting.
Levy minimum charges on each flat/shop for wastage of water, utilisation of water for garden or cleaning of staircase etc., as the facilities are used for common purpose including closed flat / shops.
Balance water charges to be recovered may be charged on the basis of meter if meter installed or in other cases on the basis of number of persons occupied.
If water meter is defective, charges may be collected on the basis of average consumption in the earlier months or on per head basis.
Some societies charges water charges for defective meters in the progressive manner say in the first month Rs. 100/- per head, if meter not repaired in the next month Rs. 200/- per head, third Rs. 300/-. This system is wrong and should never be adopted to create legal problems in the society.
Some Societies charges water for commerial units above the normal charges as more water is consumed by such commercial units like hotel, hospital, etc. and there will be in the general body for such differential charges, the same will be binding on the members.

Common Electric Charges
Equally for all flat / shops

Expenses on repairs and maintainance of the building
At the rate per square feet of the carpet area of each flat fixed by the general body meeting of the society at its meeting. However under bye-law no.13 (a) which states that the same shall be ¾% of the value of the flat per annum to incur normal recurring repair expenses.

Expenses on repairs and maintainance of the lift, including charges for runnign the lift
Equally by all the members, irrespective of the fact whether they use the lift or not.

Contribution towards sinking fund
As per bye-law no 13(a) sinking fund should be collected according the area of the flat/shop depending upon opts valuation in the general body meeting.

Property Tax
Normally such charges are fixed by the local authority on the basis of rateable value of the flat/shop per sq.ft and accordingly it should be collected. Where the authorities individually in respect of each flat/shop no charges should be collected by the society collect the property tax.

Parking charges
As per bye law no. 84 every member who has been allotted the stilt or the parking space of parks any vehicle within at such rates as may be decided by the general body meeting or his motor vehicle or not. Where a member has parking charges in respect of every such stilt or parking space.
The members should not that by pauying the parking charges to the socity, the risk of the vehicle would not be taken over by the society the vehicles have to be parked at the owner risk only.
Every member having a scooter, a motor cycle or an auto rickshaw or any other vehicle should obtain prior permission of the committee for parking his vehicle in the compound of the society on payment of charges, fixed by the general body of the society at its meeting.

Interest on the defaulted charges
A defaulted member shall be required to pay simple interest at such rate as is fixed by the general body of the society at its meeting, subject to the maximum of 21% p.a. on the charges of the society defaulted by a member, from the date the amount was defaulted till its payment (bye law no.74 of model bye law).
The managing committee / general body has to fix the last date of the payment of outgoing of the society in its meeting. A member shall be deemed to have committed default in payment of the charges of the society, if the payment mentioned in the demand notice is not made within the period fixed by the society.

Non-occupancy charges
Non-occupancy charges can be recovered from the members of the Co.op. Hsq.Society who has sublet his flat or any part thereof.
As per the Bye-law no. 45 (3) (c) the general body is authorised to fix the Non Occupancy charges. Whereas some of the societies, started collection non-occupancy charges at (10) the exorbitant rate. Under the circumstances, vide circular No.1094/15165/IP.no. 317114-C1, dated 9th March 1995, Co-operative and Textile department, Mantralaya has clarified as under about the charges the charge of non-occupancy charges by the society.
“Non Occupancy charges shall not exceed one time of the service charges and non-occupancy charges shall not be recovered from the member who have given his flat to any of his relative mentioned hereunder :”

Insurance Charges
Insurance charges has to be collected from the members as per the carpet area of each flat, provided that if there is increase in the insurance premium due to storing any specific goods in any flat, used for commercial purposes, the extra burden of insurance premium due shall be shared by those who were responsible for such increased premium shall be those who were responsible for such increased premium shall be those who were responsible for such increased premium in proportion of the carpet areas to their flats.

Lease Rent
The lease rent depends on the carpet area of each flat.

Non-Agricultural Tax
It depends upon the rent carpet areas of the flat and also as per the N.A. order issued by the collector.

Any other charges
The other charges may be levied as may be decided by the general body of the society at its meeting.

Non Occupancy Charges can not be more than 10% of Service Charges

By S R Agarwal Advocate

After the consideration of the Committee’s Report, the state Government issued an Order dated 1.8.2001 in Public Interest under Section 79 A of the said Act, there by directing the Societies not to charge non-occupancy charges beyond 10% of the service charges (excluding Municipal Taxes)

The levy of non-occupation
charges has been a controversial issue for a long time, which resulted into disputes between members and the Societies flooding the offices of the Deputy Registrar and the Courts. Therefore, attempts have been made by the State Govt from time to time to regulate it. The commissioner for Co-operative Societies, Maharashtra State, issued a Circular on 13.3.1992 laying down that the Societies could levy non-occupation charges upto a maximum of 25% of service charges and, accordingly, clause No: (C) of Bye-law No: 45 (2) (iii) of the old bye-laws was replaced by the following words.

“He shall pay non-occupancy charges to the Society at a rate of not exceeding 25% of the service charges as will be determined by the meeting of General body of the Society.”

This Circular was challenged in Writ Petition No: 1618 of 1993, but it was disposed off as the said Circular was withdrawn. In exercise of the powers vest in the State Government under Section 79 A of the Maharashtra Co-Operative Societies Act, the State Government issued an Order on 9.3.1995 laying down that the non occupation charges shall not be fixed beyond 100% of the maintenance charges. But this Order was also challenged in Writ Petition No: 1398 of 1996. Therefore, the State Government appointed a Committee on 19.6.1997 to look into the whole gamut of non-occupancy charges. The Committee submitted its report to the State Govt. on 31.7.1998 and when the said Writ Petition came up for hearing in January 2000, it was dismissed as withdrawn, as the State Govt submitted that the report of the said Committee was under consideration of the State Government and, in the meanwhile, the earlier Order dated 9.3.1995 was not being applied.

After the consideration of the Committee’s Report, the state Government issued an Order dated 1.8.2001 in Public Interest under Section 79 A of the said Act, there by directing the Societies not to charge non-occupancy charges beyond 10% of the service charges (excluding Municipal Taxes). Again a number of the Societies led by Palm Beach Riviera CHS Ltd. challenged this Government Order dated 1.8.2001, fixing the non-occupacncy charges not more than the 10% of the service charges, before the Hon’ble High Court during the years 2002 and 2006 on various grounds such as, that this Order was against the interest of the Societies, arbitrary, not in public interest and unwarranted interference in the affairs of the Societies and there is no legislative policy enabling the Govt or Registrar to override the bye-laws of the Societies duly approved by the Registrar enabling the General Body to fix the non-occupancy charges payable by the members and that the said Order may enable a member to use the flat as a vehicle for carrying out the object of earning money, thereby defeating the spirit of the co-operative housing.

The State Government, justifying the Order dated 1st August 2001, submitted before the Hon’ble High Court that it has been issued in exercise of statutory powers under Section 79 A of the said Act in public interest as it serves the interest of the Societies, as well as the members, because by virtue of a brute majority and with a view to extract more money from the members not occupying the flats, non-occupancy charges were being imposed whimsically and at exorbitant rates and on the basis of the income earned by such members, which amounted to levying the tax on income of the members and in some cases at the rate of per sq. ft. of the area of the Flat and the complaints were received by the Govt. that in case of a few Societies, the non-occupancy charges recovered in respect of two flats were being utilized towards the property taxes for the remaining 47 members, who were not required to pay anything towards the Property Tax and the non-occupancy charges recovered from three to sex flats were more than the property tax bill of the entire Society, which levied these charges @ of Rs. 9/- per sq.ft. per month. Therefore, the Government constituted a Committee and after due consideration of its recommendations decided a uniform rate of non-occupancy charges throughout the state, without linking the same with the rateable value of the flat or the rental income derived by such members and to achieve the objective of stopping the Societies from profiteering and to prevent unjust enrichment and acting to be detriment of the members, who gave their flats on rent or on leave and license basis and to protect such minority members from the oppression by majority in as much as a flat is a property of the member and he is entitled to return from the same sa he has invested the money for acquiring the same. It was also pointed out that in such cases, Societies do not spend any extra money on account of the member giving the flat on leave and license or rental basis and Govt is concerned for solving the housing problem in the State. Therefore, the State Govt issued the Order dated 1-8-2001 and at the same time, replaced by Bye-law No: 45 in the amended Bye-law numbered as 43 which, interalia, provided as under :-

“C) He shall pay non-occupancy charges to the Society. Non Occupancy charges shall be charged in accordance with the circular issued by the Government of Maharashtra/Commissioner for Co-operation from time to time and shall not be levied if the flat is occupied by the family of the member as defined under these Bye-laws.”

After the careful consideration of the submissions made on behalf of the Societies and the State Government, the Hon’ble High Court observed that the validity of Section 79 A of the said Act has already been upheld by this Court in the cases 1989 Mh-L-J. 173 and 1993 (2), Mh L.J. 1716 and that it has been found that in some area, levy of non-occupancy charges has become a profit making business and the State Government is empowered to issue Order in public interest preventing the affairs of the Society being conducted in a manner detrimental to toe interest of the members and looking at the housing cost as at present, the member concerned must be allowed to earn some income on the investment he has made and a good member of flats remain unoccupied for various reasons and if non-occupancy charges are allowed at the rate, the majority decide, it would be an additional impediment in the flats being available on leave and licence or tenancy basis, which does not in any way violate the provisions of the Maharashtra Ownership Flats Act and the provision of the earlier Bye-law No: 45, empowering the General Body of the Society to fix the non-occupancy charges, was being abused by some of the Societies, which cannot be allowed to use the authority under the Byelaws, a vehicle for making money and exploit the minority members, as it is not the business of the societies to impose taxes and derive income by different modes, like non-occupancy charges etc. The Hon’ble High court came to the conclusion that the exercise of the power by the State Government is bonafide one with the objective to avoid unnecessary litigation and disputes and bringing uniformity in the rate of non-occupancy charges without linking the same to the income derived by the concerned member or the rateable value of the Flat and to prevent the exploitation of minority members. The argument on behalf of the Societies that the entire property of the Society was assessed as one Unit for Municipal Taxes and the flats given on rent or leave and licence basis would add to the rateable value component thereby, giving rise to increase in such taxes did not find favour with the High Court as of no significance and need not be considered, as each flat is assessed separately for Municipal taxes with effect from 1st April 2006.

Thus, the issue of the quantum of the non-occupancy charges has been finally settled by the Hon’ble Bombay High Court by its Judgment dated the 2nd March 2007 by unholding the Government Order dated 1st August 2001, prescribing the non-occupancy charges not more than 10% of the service charges, excluding property taxes, both in respect of residential as well as commercial premises, irrespective of the fact whether the new Bye-laws are adopted by the Societies or not. This Judgment has brought in a great relief to the members of the Societies, who give the flats on rent or leave and licence basis.

Levy of Charges in Housing Societies

By Legal Bureau

The contribution to be collected from the members of  the society towards outgoing and establishment of its funds, referred to in this bye-laws as ‘the charges’ may be in relation to the following: (i) Property taxes, (ii) Water Charges, (iii) Common Electricity Charges,(iv) Contribution to Repairs and Maintenance Fund, (v) Expenses on Repairs and Maintenance of the lifts of the society, including charges for the running the lift, (vi) Contribution  to the Sinking Fund, (vii) Service Charges, (viii) Car Parking Charges, (ix) Interest on the defaulted charges, (x) Repayment of the installment of the Loan and Interest, (xi) Non-occupancy Charges, (xii) Insurance Charges, (xiii) Lease Rent, (xiv) Non-Agricultural Tax, (xv) Any other Charges.

 

The service charges of the society referred to at (vii) above shall include the following:

(i)                 Salaries of the office staff, liftmen, watchman, malis and any other employees of the Society.

(ii)               Where the Society has independent office, the property taxes, electricity charges, water charges etc. for the same.

(iii)             Printing, stationery and Postage.

(iv)             Travelling Allowance and conveyance charges to the staff and the members of the committee of the society.

(v)               Sitting fees paid to members of the committee of the Society.

(vi)             Subscription to the Education Fund the Maharashtra Rajya Sahakari Sangh Ltd.

(vii)           Annual Subscription of the Housing Federation and any other co-operative institution to which the Society is affiliated.

(viii)         Entrance Fees for affiliation to the Housing Federation and any other co-operative institution.

(ix)             Audit Fees for internal, statutory and re-audit, if any.

(x)               Expenses incurred at meetings of the general body, the Committee and the sub-Committee, if any.

(xi)             Retainer fee, legal charges, statutory inquiry fees.

(xii)           Common electricity charges.

(xiii)         Any other charges approved by the General Body at its meeting. However such charges should not contradict the provisions of the act, rules and bye-laws of the Society.

(a)    The committee shall apportion the Share of each member towards the charges of the Society on the following basis.

(i)                 Property taxes: As fixed by the Local Authority.

(ii)               Water Charges: On the basis of total number and inlets provided in each flat.

(iii)             Expenses on repairs and maintenance of the building/buildings of the society: At the rate fixed at the General body from time to time, subject to the minimum of 0.75% p.a. of the construction cost of each flat for meeting expenses of normal recurring repairs.

(iv)             Expenses on repairs and maintenance of the lift, including charges for running the lift: Equally by all the members of the building in which lift is provided, irrespective of the fact whether they use the lift or not.

(v)               Sinking Fund: As provided under the bye-law No.13(c).

(vi)             Service Charges: Equally divided by number of flats.

(vii)           Parking Charges: At the rate fixed by the General Body of the society at its meeting under the bye-law No.84/85

(viii)         Interest on the delayed payment of charges: At the rate fixed under the bye-law No.72 to be recovered from the defaulter member.

(ix)             Repayment of the installment of the loan and interest: The amount of each installment with interest fixed by the financing agency.

(x)               Non-Occupancy charges: At the rate fixed under the bye-law No.43(2)(iii)(c)

(xi)             Insurance Charges: The built up areas of each flat, provided that if there is increase in the insurance premium due to storing any specific goods in any flat, used for commercial purposes, the extra burden of insurance premium shall be shared by those who are responsible for such increased premium in proportion of the built up areas of their flats

(xii)           Lease Rent: The built up area of each flat.

(xiii)         Non-Agricultural Tax: The built-up area of each flat.

(xiv)         Any other charges: As may be decided by the General body of the society at its meeting.

(b)    The Committee shall fix in respect of every flat the Society charges on the basis laid down as under the bye-law No.69 (a).

 

The Secretary of the society, shall prepare bill/demand notice in respect of the charges of the Society payable by members on the basis of the bye-law No.69(a) and issue the same to all the members on or before the date fixed by the committee in that behalf. Every member of the Society shall pay the amount mentioned in the bill/demand notice in full within such period as may fixed by the Committee.

 

A member shall be deemed to have committed default in payment of the charges of the society, if the payment mentioned in the demand notice/bill is not made within the period as prescribed under section 73FF(c) of the act. The Secretary of the society shall bring the cases of defaults in payment of the Society’s charges to the notice of the committee or taking further necessary action.

 

A member shall be required to pay simple interest at such rate as is fixed by the General body of the Society at its meeting, subject to the maximum of 21 percent per annum, on the charges of the society, from the date the amount was delayed till its payment not paid by the member within the period as prescribed under bye-law No.70.

 

Transfer fees is caped at Rs25000/- in Maharashtra

By Legal Bureau
Although Bye-law clearly says that the amount of transfer fee should not exceed Rs. 25000/-. Many housing societies in Maharashtra are still charging ad-hoc transfer fees. Sometimes it goes in lakhs. The sum Rs. 25000/- is the maximum limit a society can charge transfer charges. Many society are charging the same but it can be much less than the maximum limit. As per Bye-Law no. 40(d)(vii) the Society should collect transfer charges 2.5% of the difference between the book value of the flat and the price realised by the transferor on Transfer of the flat OR maximum Rs. 25,000/- whichever is less. Supposed difference between purchase and sale of the flat is Rs. 4,00,000/- hence the society cannot charge transfer fee more than Rs. 10,000/-. But not many society know the provision of charging 2.5% on the difference, instead they directly jump to maximum limit of Rs. 25,000/-.

 

Latest Transfer Fees Judgement
THE MAHARASHTRA STATE
CO-OPERATIVE APPELLATE COURT, MUMBAI
Shri L. H. Patil, Member
Shri Ramana Co-operative Housing Society Ltd., Bombay
Versus
Shri S. D. Chittar, Bombay
(Appeal No. 17 of 1986, decided on the 19th December, 1986)
Maharashtra Co-operative Societies Act, 1960 – Section 91 – Transfer fees or charges of the flat – Claimed by the Society and recovered accordingly – Question of refund of the amount – Principle of estoppel – Applicability – Held, Society had no right to charge transfer fees in excess of provision of Re. 1/- under bye-law – The member had right to demand the money back, with damages in the form of interest – (Co-operative Society – Transfers fees or charges of flat – Recovery – Refund; Estoppel; Evidence Act, 1872- Section 115).
Where the Society has not said a word for what reasons it has to charge these transfer fees, as passing of a resolution to charge cannot be a reason on legal ground to authorise the Society to collect such charges which are in no way less than levying toll or a tax. In the absence of that the charges levied by the Society would be absolutely an arbitrary act and restriction illegally right over the property held by the member in the Co-operative Society. The Society is no doubt entitled for recovery of the maintenance charges for management of the Society and allied expenses which are required to be paid off to other statutory bodies. [Para 5].
The Maharashtra Co-operative Societies Act and Rules made thereunder, do not provide for such a right with the Society to charge transfer fees in addition to Re. 1/- prescribed by the bye-laws when the member intends to transfer his property in the Society in favour of third party. One can very well understand a reasonable restriction which can be imposed on a member, who would induct the third party as a member of the Society on the grounds of safeguarding the interest of the Society which may cause nuisance from unwanted element but that does not mean that the Society can have such a right of profiteering out of the Co-operative movement. [Para 5].
The Society would be ignoring this object and putting a penalty on its member on such occasions when it was ready to help him to solve his problems. Generally they are not suppose to squeeze by arbitrary acts to whomsoever once they get benefit but of the Co-operative movement. [Para 5].
The resolution only, even if passed, by General Body of the Society would have no overriding effect and binding on the members inter se if it is not approved by the Registrar and even if approved it would be totally illegal. How any Society can charge transfer fees in the manner in which it has been passed in this matter also. The lower Court was absolutely right in granting the award for refund of the amount with interest in the form of damage as claimed. The Government had already imposed the penalty on a member that was also irrational, improper as the Government is not supposed to profit out its subjects and difficulties, investment of his own hand earned money in the Society when he is compelled to liquidate his investment for some difficulties and to ask him to pay 50% of the excess money of the cost of construction forgetting how long his money was locked. The member cannot be penalised in such manner even by the Government and the Society atleast had absolutely no right to charge transfers fees in excess of its provision of Re.1/- under bye-law. The member had therefore right to demand the money back, with damages in the form of interest. [Para 5].
Judicial reference:
Co-operative Society- Property held by a member-Reasonable restriction on transfer-Limit.
It is well-settled law now that the property held by a member in Co-operative Society is a property heritable and transferable and if such a property is held by a member there cannot be such restrictions which could rather amount to be a sort of tax or toll amounting to putting a log as the rights of the member over his property. The Society charges transfer fees only with a view to enrich itself and for neither count. However, reasonable restrictions on transfer are always approved by the Court. [Para 5].
Case-law referred:
(1) 77-BLR 549.
Advocates appeared:
Shri Vaidhya, Advocate for the appellant.
Shri. Rajiv Naroola, Advocate for the respondent.
JUDGEMENT
1). L. H. Patil, Member – This appeal arises out of the judgement and award passed by the learned trial Judge in the dispute filed by the Respondent, holding that the Society was liable to pay to the disputant Rs.6,000/- with interest at the rate of 9% per annum from 25-7-1977 till realisation within 15 days from the date of award and the costs of the dispute. The dispute was filed by the respondent for recovery of the sum of Rs.6,050/- with interest at the rate of 12% per annum alleging that this amount was illegally recovered from him by the Society as transfer fees or charges of the flat by him in favour of other. The disputant was a member during the period 1964 to August, 1977 of the appellant-Society which was registered under the M.C.S. Act, 1960. The Government through its Additional Collector of Mumbai had allotted 2 plots of land to this Society. One of the conditions of the allotment was that the Society should not enroll any additional members or substitute any member in place of those members approved by the Government except with the previous written approval of the Government. The disputant was admitted as a member after due approval by the Government. By August, 1972 building was constructed by the Society and the disputant was allotted one flat in the said building in October 1972. In 1975 the disputant, for certain reasons wanted to transfer his flat and for that purpose he applied to the Society for approval. It was in favour of one Mr. A. V. Patkar, who was posted as District and Sessions Judge at Sholapur since deceased. After some time he was required to pay Rs. 25/- to the Society on application for transfer. The Society had accepted his application so the disputant applied to the Secretary to the Government of Maharashtra in the concerned Department in July 1975 for permission to accept the said Mr. Patkar as a member in place of the disputant. As usual the Government was not so prompt in disposing of the application of the disputant. Somewhere in December, 1976 the Government called upon the disputant and asked him whether he was ready to pay to the Government 50% of the difference between the cost price of the flat and the sale price of the flat, as a matter of policy of the Government, it seems that before the matter could be finalised by the Government, Mr. Patkar died somewhere in January, 1977. The natural effect was that the said proposal was fissled out. The disputant had to apply again with fees of Rs. 25/- to the Society for transfer in favour of Mr. H. S. Rao, another officer from Marmugan Port Trust. The Secretary of the Society with the approval of the Managing Committee sent application to the Secretary of the Government Department in April, 1977 for permission to accept Mr. Rao as a member in the disputant’s place. It seems that the Government in this matter was very prompt which was also an unusual features of the Government working as it finalised in May, 1977 in the matter of application in April 1977 which is contrary to the personal experience and a condition was put up that on payment of this sum of Rs. 11,700/- within a fortnight to the Government the proposal would be accepted. The disputant accordingly paid the amount to the Government through the Reserve Bank of India and the final orders were passed by July 1977. Now inspite of this payment, the Society also recovered from the disputant somewhere in the last week of July, 1977 an amount of Rs. 6,000/- as transfer fees. It had also recovered Rs. 50/- as above in addition to those Rs. 6,000/-. Therefore a grievance is made that the Society had no right to recover such transfer fees from the disputant. But as the disputant was a needy person for liquidating his investment as early as possible, he had submitted to this illegal demand under a sort of a duress and after the payment and after completion of transfer, he is asking for refund of the amount with interest as stated above. The fact which is alleged in the dispute application is that the Society had subsequently reduced the transfer charge Rs. 6,000/- to Rs. 1,500/- even then that was also illegal. Hence, the dispute was filed for the recovery of this amount.
2. The Society filed its written statement opposing the claim on the ground, that the dispute was not maintainable since the disputant was stopped from claiming the amount as he was stopped from challenging the recovery by the Society since he was party to the resolution passed by the Managing Committee at the relevant time. It is said that he was a member of the Managing Committee and also some time a Chairman, some time in the year 1974-75. So the principle of estoppel is raised against him for the claim. It is said that the Government had approved the transfer with a copy, subsequently sent to the Society for information. According to the Society, the Special General Body Meeting held on 1-9-1973, had adopted resolution which was sent to the Registrar for approval on 2-11-1972. Again in the year 1973 the Managing Committee had referred to the General Body for revised amounts chargeable on transfer of tenament which were also considered by the Special General Body in its meeting held on 15-4-1973, wherein a resolution was passed unanimously, adopting the said rules and it is said that the disputant had paid in accordance with these rules, However, it is asserted that it is not correct that the Society is not entitled under the provisions of the Co-operative Societies Act to recover an amount as a transfer fee. The payment to the Government made by the disputant did not include charges levied by the Society, therefore, the claim for refund was also opposed by the Society. The learned trial Judge after hearing the parties examined the issues on merits and passed the impugned order.
3. It is now urged before me on behalf of the Society as well as the original disputant that the facts regarding claim of the rival parties as stated before the lower Court were correct. I have to consider which out of them is more correct for acceptance by the Court for grant of the reliefs in the dispute or for rejection thereof as per the defences raised. Mr. Vaidhya the learned Advocate for the appellant against whom the award is passed contended that the payment made by the respondent to the Government had nothing to do with the resolution passed by the Society and further the disputant had approached directly to the Government and had obtained permission, therefore that payment is not a payment which is binding on the Society for consideration of the transfer fees It is then said that the disputant was a member of the Managing Committee and was present when the resolution for charges was passed and therefore he was estopped by conduct challenging the recovery in view of the resolution adopted. Therefore, it is said that the trial Court wrongly appreciated the issues and the effect resulted in wrong decision thereof.
4. As against this, Mr. Naroola has contented that the conduct of the respondent would not operate as a estoppel in law as the estoppel is alleged against the legal principle and not on factual aspect only, when the Society had no legal right in asking for transfer charges, the payment by a member itself would not amount to an estoppel by conduct and therefore if a thing which is accepted for unjust enrichment in equity, has to be set right by asking to refund the same with an order of interest for the unlawful loss resulted out of this inequitable and unlawful acts on the part of the Society. It is then said that there was no approval of the Registrar for any such bye-laws of the transfer fees. Then he relied on certain rulings of this Court earlier passed in the matter of Lajpatrao in Appeal No. 387 of 1975 and in a matter of Ramesh Shah V/s. Harsookh Joshi, [77 BLR 549].
5. It is a matter of record and to be clear on this aspect that the Maharashtra Co-operative Societies Act and Rules made thereunder, do not provide for such a right with the Society to charge transfer fees to in addition to Re.1/- prescribed by the bye-laws when the member intends to transfer his property in the Society in favour of third party. One can very well understand the reasonable restriction which can be imposed on a member, who would induct the third party as a member of the Society on the grounds of safeguarding the interest of the Society which may cause nuisance from unwanted element but that does not mean that Society can have such a right of profiteering out of the Co-operative movement which I have come across on several occasions in different ways adopted ingenuously by the Society and one of them is charging arbitrarily when it has no legal foundation to charge such amounts. It is well-settled law now that the property held by a member in Co-operative Society is a property heritable and transferable and if such a property is held by a member there cannot be such a restrictions which could rather amount to be a sort of tax or toll amounting to putting a log as the rights of the member over his property. The Society charges transfer fees only with a view to enrich itself and for neither count. However, reasonable restrictions on transfer for the reasons stated above are always approved by the Court, as we understand it from the Constitution. Here in this matter the Society has not said a word for what reasons it has to charge these transfer fees, as passing of a resolution to charge cannot be a reason or legal ground to authorise the Society to collect such charges which are in no way less than levying toll or a tax. In the absence of that the charges levied by Society would be absolutely an arbitrary act and restricting illegally right over the property held by the member in the Co-operative Society. The Society is no doubt entitled for recovery of the maintenance charges for management of the Society and allied expenses which are required to be paid off to other statutory bodies. It is therefore difficult for the people like me to understand the attempts of such Societies in enriching themselves by such levy when they appear to me diagnomically in contrast to the spirit of Co-operative movement as we understand it is basically for the benefit of lower strata of the Society and when it is enshrined with all favours from Government to attain the said laudable object to serve the poor needy people. The Society would be ignoring this object and putting a penalty on its member on such occasions when it was ready to help him to solve his problems. Generally they are not suppose to squeeze by arbitrary acts to whomsoever once they get benefit but of the Co- operative movement. Here in this matter it is said that the General Body had passed a resolution, I am afraid of endorsing any legality to the decronic resolution passed by majority of the Society which is basically detrimental to the spirit and law of co-operation and against the interest of individual members which has no legal sanction. It is said that bye laws No.51(I) also requires that any regulation or bye-law if to be amended requires approval of the Registrar for imposing such charges of the Society. The resolution only, even if passed, by the General Body of the Society would have no overriding effect and binding on the members inter se if it is not approved by the Registrar and even if approved it would be totally illegal. Therefore argument in favour of Society would be over simplification if it is to be accepted. I am unable to understand till today how any Society can charge transfer fees in the manner in which it has been passed in this matter also. In this matter I find that the lower Court was absolutely right in granting the award for refund of the amount with interest in the form of damage as claimed. The Government had already imposed the penalty on a member that was also irrational, improper as the Government is not supposed to profit out of its subjects and difficulties, investment of his own hard earned money in the Society when he is compelled to liquidate his investment for some difficulties and to ask him to pay 50% of the excess money of the cost of construction forgetting how long the capital investment was made and how long his money was locked. I can only say that the member cannot be penalised in such manner even by the Government and the Society at least had absolutely no right to charge transfer fees in excess of its provision of Re. 1/- under bye-law. The member had therefore right to demand the money back, with damages in the form of interest. Therefore, in order to avoid the judgement being lengthy, I pass the following order:-
ORDER
The appeal is dismissed. The Appellant-Society shall pay Rs. 150/- as costs of this appeal to the respondent.

Service charges in Housing Society

By Hemant Agarwal, Legal Consultant

SERVICE & MAINTENANCE CHARGES:

01.  Under, “The Maharashtra Co-Operative Societies Act I960”,  ONLY a Registered Coop. Society,  is entitled to duly levy and recover “Service & Maintenance Charges” from its registered members.

a)    The Society CANNOT levy or recover any charges from non-registered members.

b)    The Society can levy service charges ONLY WHEN the Society provides “Common Amenities and Services” to its members.

c)     IF any Services are NOT  provided to members and IF charges are forcefully or misleadingly recovered from members (in which-so-ever manner), THEN the Society can be held liable for “Deficiency & Negligence” under the Consumer Protection Act.

d)    Depending on various parameters, the Managing Committee (MC) may also be prosecuted under the Criminal laws, the Coop. Laws and the Consumer laws.

BUDGET PROJECTIONS OF INCOME & EXPENDITURE:

02.  A Coop Society, MUST prepare yearly “Budgetary Projections” of its Income & Expenditures.

a)       The consolidated & projected Expenditure has to be EQUALLY divided between the number of units (means Flats /Shops /Offices or whatever) AND ONLY then levy a fixed amount of “Service Charges” to each unit, via a duly prepared & duly issued bill.

b)       Service Charges MUST be levied Unit-wise and NOT any otherwise.

c)        Service Charges are NOT to be levied Unit-area-wise or say square-feet-wise.

d)       Budgetary projections MUST be circulated & duly approved by the General Body, in a duly called General Body (GB) meeting.

e)        Without GB approval of the Budgetary projections, disputed recovery of any increase in “service charges”, shall not be tenable in a Court of Law.

f)         It is not the business of a Coop. Society, to earn .OR.  accumulate money.  Hence no other funds in any manner can be collected from members.

g)       One unit is defined in the BMC approved floor plans, which is irrevocable.  BMC approved one unit means one Share Certificate. Each Share Certificate, in turn means one Service Bill, irrespective of anything.

SERVICE & MAINTENANCE BILLS:

03.  The Secretary is compulsorily liable to prepare “Service & Maintenance Bills”, on Monthly or Quarterly (or whatever agreed basis) and give it to the member, under due acknowledgement.

a)          IF the Secretary fails to prepare “Service & Maintenance Bills” within the pre-determined time frame, THEN the Secretary is liable for his omission and any related loss to the Society (means loss of the Bank-Interest component, that the Society could have necessarily appropriated).

b)          Here, the Secretary’s usual consistent RANTING claim of holding a “Honorary Post”, can lawfully be flushed down the sewage drain.

c)           The Liability of the member, to pay the Bills, arises only after receiving the Service Bill.    There is no concept of automatic billing or automatic payment of bills.

d)          The member is not liable to pay Interest, when bills have not been received by him.

Note: RANTING MEANS: To utter in a high-flown, self-important way, with obvious intention to subdue & demoralize other members.

BMC PROPERTY TAXES:

04.  The Society has to collect BMC Property Taxes, from the members, on behalf of BMC, and deposit the same, within the BMC bill period.

a)     Members BMC Property Tax contributions, cannot be used for any other expense heads, irrespective of whatever reasons .OR. which-so-ever emergency.

b)     Mandatory and Statutory Property Taxes are levied by BMC, on square feet area-wise, for each individual flat-owner (member).  This is to be determined accurately from the “Property Tax Extract”  document, that has to be obtained from BMC, for preserving the same on Society records..

c)      To avoid recovery arrears, the Society should first clear off all the pending Property Tax bills and apply to BMC, to individualize each members portion of the Property Tax bills, into the  name of individual flat-owner (member), to avoid subsequent defaulter members dues on Society accounts.

d)     Property Tax for common areas of the Society building, have to be divided equally and borne by each member.

BMC WATER CHARGES:

05.  The Society has to collect “Water Charges”, from its members:

a)     On the number of each Inlet-pipe connected and going inside the members flat.  This can be determined by Plumbing-Layout diagram, as approved by BMC.

b)     Actual Water bill amount must be divided by the total number of Inlets, irrespective of water usage pattern.

c)      Society is eligible to duly amend its Bye-Laws, to change the criteria for levy of water charges to members.

d)     Common water charges (for Garden, Car washing, Lobby /Staircase washing, Fire-tanks, Rain-dance showers, Swimming pool ….), are to be borne equally by all members, irrespective of anything.

BORE-WELL WATER CHARGES:

06.  Bore-well or Open-well or Grey-water or stored Rain-water …., may be supplied to members, vide separate tanks, BUT without any charges.

a)           Bore-well Motor-Pump service & maintenance charges and electricity charges, are within the definition of “Common Amenity expenses” and are to be borne equally by all members.

b)           Permission to dig Bore-well, in Mumbai, is to be duly sought from BMC (Pest Dept).

c)            It would be an offence to mix bore-well water with Municipal supplied water, and can be prosecutable under the Consumer Protection Act, as well as BMC Act.

SINKING FUND & REPAIR FUND:

07.  A Society has to mandatorily collect, from its members:

a)    Sinking Fund, at the rate of 0.25% of the prevailing construction cost

b)    Repair Fund, at the rate of 0.75% of the prevailing construction cost

c)     Every alternate year the Society must get a certified Architect’s certificate, for the prevailing construction cost and only then levy appropriate Sinking Fund and Repair Fund.

d)    It would be illogical & a fatal error, to statically keep collecting Sinking and Repair Funds, at the buildings original construction cost.

e)     It would further be illogical & a fatal error to consider the accumulated bank-interest on such Sinking and Repair Funds deposits, as a substitute for “prevailing construction costs”.

f)      The exact amount of Sinking Fund and Repair Fund, collected from members must be deposited in Coop. Dept., approved Banks only, on long-term deposits.

g)    It would be highly unwise, for the Society,  to utilize the Sinking & Repair funds, for routine or intermediate repairs of the building.

h)    In a Flat-Ownership Society, where a membership is voluntary, a member may relinquish his Society membership, and is entitled to claim his contribution of his Sinking and Repair Fund and interest thereon.

i)      Due to the latest amendment of the BMC Act, pertaining to mandatory repairs (as required), of 30-Plus year old buildings, majority of the Societies would be in a Stale-Mate situation, since the existing reserves of Sinking and Repair Fund (and interest thereon) are grossly insufficient, more specifically so, since majority of the Society’s are ignorantly collecting Sinking and Repair Funds, at the buildings original construction cost (which may be at 200/- per feet in 1970’s vis-a-vis the present 2000/- per feet in 2013).

j)       This Stale-Mate situation further aggravates more so, specifically due to the gross apathy and penny-pinching service-charges being half-heartedly paid by members.

k)    Majority of the Society’s Balance Sheets, are apathetic and the Society building also grows more pathetic, with passage of time.

COMMON SERVICE CHARGES:

08.  During Budgetary projections and provisions, the Society must decide the “Common Service Charges” that needs to be levied on members.

a)        Yearly Expenses of the Society on Lift, Insurance, staff Salaries, Electricity, Security services, Stationery, Legal fees, Billing, Accounts & Audit fees and other common expenses, are to consolidated and divided and are to be borne equally by all members.

b)        Levy of “Separate Amenity Charges”, on selective member or members Tenants, are illegal and not tenable for subsequent recovery proceedings.

c)         Specific Repair Work (like Mass Plastering and Painting, Replacement of Lifts, Replacing Electrical cabling & wiring, Replacing Plumbing pipes) are not within the ambit of “Common Service Charges”.

d)        A separate duly approved Fund needs to be freshly generated, for “Specific Repair Work”. The preserved Sinking & Repair fund (and accumulated interest), may also be used for the “Specific Repair Work”, subject to various parameters.

MAINTENANCE FREE SOCIETY:

09.  The false concept of “Maintenance Free Society”, being propagated by few ambitious Society’s, is not tenable under the Law.

a)         It is mandatory to collect routine “Service Charges” from members, irrespective of anything.

b)         It will be an offence to collect “Deposits” (in any guise of voluntary donations or corpus fund or excess Share Transfer Premium or whatever)  from members, (more so specifically from Flat-Owner type Society) and invest such deposits for the sole purpose of earning Interest, for meeting the common expenditure of the Society.

c)          The preamble of the Cooperative Movement, would be compromised, since the Member would not be paying anything for the “Common Services and Amenities”, while availing free services.

d)         Some nefarious minded MC’s would discontinue selective services, on the pretext that Society is providing “Complimentary Service” to the members. AND the members would not have any legal remedy, in any court of law.

e)          Such “Maintenance Free Society”, run on Bank Interest Money, would also circumvent, statutory payments under statutory laws like “Service Tax, Income Tax and so on….

NON-OCCUPANCY CHARGES:

10.  The Society has to mandatorily levy a fixed 10% as “Non-Occupancy Charges”, on:

a)    Members flats, given out on Rent /Lease to non-family members.

b)    Anything beyond 10% as “Non-Occupancy Charges”, shall be illegal.

c)     A fixed “10% Non-Occupancy Charges”, is to be levied on the regular Society Service /Maintenance charges, but to the exclusion of Statutory charges (e.g.  BMC Property Tax, NA Tax, BMC Water Charges).

d)    IF the Mg. Committee (MC),  fails to levy the Non-Occupancy Charges to the member (if duly applicable), THEN all the MC has to jointly compensate the Society for the relevant loss, by paying the same from  their own pockets.

PARKING CHARGES:

11.  The Society is entitled to levy “Parking Charges”, only if the Society owns the land (means the plot of land should be conveyed in the Society’s name, means the Society should be the Land-Lord of the plot of land, on which the Society building is standing)

a)      IF the Balance Sheet, does not reflect the heading “Land” and the value of the same, THEN it would mean that the land is not in the name of the Society.

b)      IT also means that the Land is in the name of the original Land-Lord or the Builder /Developer.

c)       The Seven Twelve extract (7×12), obtained from the Tehsildars office would also reflect the real land-owners name.

d)      In a Flat-Owner type Society, there is no “Privity of Contract” between the landlord/builder and the Society, since the Society is formed /registered only after the flats are constructed.

e)       Further, in a Flat-Owner type Society, there is no “Privity of Contract” between the Flat-Owner and the landlord/builder, towards the usage of plot of land, more so since a typical Flat-Purchase agreement, reflects only the absolute rights in the Flat, that is purchased by the Flat-purchaser..

f)        There is Latin saying;” Nemo debet quod non habet “.   THIS means that no one can give what he does not own. More Simpler it means – You cannot earn from someone else’s property.   Here since the Land belongs to the Landlord /Builder, the Society cannot earn “Parking Charges”, without the express written agreement /contract from the Landlord /Builder.

g)      IF the plot of land is conveyed in the Society’s name in the Seven Twelve extract (7×12), THEN the Society can levy “Parking Charges”, subject to fixation of Parking Charges and consequent approval from the General Body vide a duly proposed and seconded resolution.

h)      The amount of Parking Charges, chargeable per vehicle, per month, may vary from Ten rupees to Ten thousand rupees, which is leviable at the discretion of the General Body’s duly approved resolution.

Note: No GB Resolution is equal to No Parking Charges, which also means “Charge-Free-Parking”, for all members.

i)        The Society shall remain liable, by legal default, for any damages to vehicle in the Parking slots, irrespective of the nefarious board, broadcasting “Parking at Owners Risk”.  The Car-Owner, shall always have an open option to approach the Consumer Court, for successfully claiming damages and compensation, alleging “deficiency and negligence” by the Society /MC.  This is subject to “Parking Charges” being collected from members.

INTEREST:

12.  A Society is entitled to levy Interest on Society Dues, on its members, subject to various parameters.

a)     The Coop. Dept., allows a maximum of 21% simple interest (non-compoundable) on the outstanding dues of the Society.

b)     Interest cannot be levied on BMC Property Taxes and BMC Water Charges and NA Taxes or any other statutory taxes or charges.

c)      IF the registered and approved bye-laws, do not reflect the relevant Interest Charges, THEN the Society cannot levy any Interest on members outstanding dues.

d)     The Society is free to levy Interest from 0% to a maximum 21% Interest on outstanding dues of member, subject to the fixation and approval of the Interest rate, in a duly proposed and seconded General Body resolution.   However the relevant courts of law, during disputes, usually refrain from granting exorbitant interest as high as 21%.

OTHER CHARGES:

13.   Majority of the Society’s are under deep hallucination, that the General Body is vested with power to pass resolutions for any charges they deem fit and categorize the said charges,  into “Other Charges”.

a)     The Society may categorize “Other Charges”, for only those services and amenities, that is proposed to be provided and is not categorized separately in the bye-laws.

b)     The Society is not entitled to levy any “Legal Charges”  .OR. any other charges to a member, if it does not fall under the broader category defined as “Service and Amenities”.

c)      In newly constructed buildings, the developer-builder provides “Sewage Treatment Plants”, which comes under the definition of “Service and Amenities”.  Since “Sewage Treatment Plants”, is not covered under the present bye-laws, the service charges can either be collected labeled as “Common Service Charges”   .OR.  “Other Charges”. Same example applies for “Club House”, “Swimming Pool”, “Recreational Area”, “Community Hall”, Generator and so on…. Subject to various parameters.

d)     The Society is not entitled to recover “Legal Fees & Expenses”, from members, towards filing of Recovery Proceedings u/s 101 of the MCS Act.  Such costs can be recovered, ONLY subject to written orders of the competent authority.

PENALTY:

14.  The ONLY objective of a Coop. Housing Society, is to provide “Common Services & Amenities”, to its members, on mutual & equal contributory terms.

a)    Penalty can be extorted from ignorant /innocent members, under indirect threats, till the member can be fooled /subdued.

b)    A Society is a Service-Provider, under the Consumer Protection Act.

c)     A Society has no lawful jurisdiction to levy any type of Penalty on members, since the Society is not a law-implementing   .OR.   law enforcing authority.

d)    The concept of Penalty in a Coop. Society, is dictatorial and breaches the very concept of a “Cooperative Movement”.

e)     It would be unlawful to levy Penalty on  Flower pots placed outside Main doors or on Window Grills, .OR. levy Penalty on Shoe-Racks kept outside the Flats main doors, .OR. for throwing banana skins outside the Flats window  .OR.   keeping Gas cylinder /Washing Machine on Window chajjas, AND so on ….

f)      It is beyond the jurisdiction of a Society, to levy penalty for “Box Grill”, “Internal Alterations”, “Amalgamations” and so on, since the lawful jurisdiction to do so, rest ONLY with the BMC authorities.

g)    It is beyond the jurisdiction of a Society, to levy penalty for “Loud Music”, “Spitting”, “Rude behaviors”, Wife-beating,  Pick-pocketing, Drinking & Gambling and so on, since the lawful jurisdiction to do so, rest ONLY with the law-enforcing/ implementing authorities.

INTROSPECTION:

15.   IT is lawfully essential, for every Coop. Society  to:

a)    Audit the Accounts and get the Audit Report by a enlisted Coop. Panel Auditor

b)    File Income Tax and TDS returns

c)     File Service Tax returns (subject to certain parameters)

d)    Pay Property Tax, NA Tax, Profession Tax and Water charges, as per Statutory provisions

Non Occupancy Charges is 5% in Goa

By Goa Bureau
Sec. 133. Fees for non-occupancy of plot or dwelling unit.— A member of a co-operative
housing society who has been given consent under section 107 of the Act for parting
possession of his plot of land or dwelling unit shall pay every month to the society a
non-occupancy fee not exceeding 5% of the fees or compensation as provided in the
document between the member and sub-allottee as may be laid down in the bye-laws of
the society:
Provided that no such fees shall be paid if possession of such plot or dwelling unit is
parted with by a member, to a member of his family as defined in ‘Explanation’ under
section 6 of the Act.

Non-occupancy charges received by Housing society not taxable

By Legal Bureau

Assessee has challenged the addition of Rs.30,914/- made by the Assessing Officer on account of non-occupancy charges as income from the business not covered under the principles of “mutuality”. Learned AR submitted that the assessee’s case is covered by the decision of the ITAT Mumbai Bench passed in ITA No.6325/Mum/06 for the assessment year 2003-2004 vide order dated 14-5-2009 in the case of the assessee itself. On the other hand, the learned Senior DR relied upon the findings of the Assessing Officer. We find that this issue is already covered by the decision of the ITAT in ITA NO.6325/Mum/06 for the assessment year 2003-2004 and also by the decision of the Hon’ble Jurisdictional High Court in the case of Mittal Court Premises Cooperative Society Limited Vs. ITO, reported in (2010) 320 ITR 414 (Bom), holding that non-occupancy charges will not be taxable on the ground of principle of “mutuality”. Accordingly, ground No.6 raised by the assessee is treated as allowed.

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

ITA No.2102 /Mum/2010 – Assessment Year: 2007-2008

M/s Mahalaxmi Sheela Premises CHS Ltd. Vs. ITO

Date of pronouncement: 11th May 2012

O R D E R

PER AMIT SHUKLA (J.M.) :

The present appeal is arising out of the order dated 11-2-2011, passed by CIT(A)-28, Mumbai for the quantum of assessment determined under Section 143(3) for the assessment year 2007-2008 on the following grounds of appeal :-

“1. The learned Commissioner of Income Tax and learned assessing officer erred in assessing the Total Income of assessee at Rs.29,65,410/- instead of 16,28,150/-.

2. The learned Commissioner of Income Tax erred in passing an ex-parte order and mentioning incorrect facts. The authorised representative had sought an adjournment which was granted by the office of the commissioner. It was only on the last date in 10th February 2011 that the AR cold not attend due to ill health.

3. The learned Commissioner of Income Tax and learned assessing officer erred in arriving at the receipts from Smt. Sudha Vora at Rs.29,67,394/- instead of Rs.23,97,356/- (Rs.24,29,296/-) less 32,606/- (Municipal Taxes) without giving any reasons in assessment order although the ledger copy was on record of the assessing officer.

4. The learned Commissioner of Income Tax and learned assessing officer erred in treating receipt from Smt. Sudha Vora as income from other sources instead of income from House Property.

5. The learned assessing officer erred in taxing Rs.17,101/- received by way of miscellaneous income from the sale of scrap as business income and learned Commissioner of Income Tax appeal erred in confirming the same.

6. The learned assessing officer erred in treating Rs.30914/- being non occupancy charges as income from Business and Profession and learned Commissioner of Income Tax appeal erred in confirming the same.

7. Without prejudice to the other grounds raised, the Learned Commissioner of Income Tax Appeal failed to consider the alternative arguments of the assessee for granting deduction u/s 57(iii) of Rs.6,15,846/-.”

2. At the outset, learned AR on behalf of the assessee did not press the grounds No.1 & 2. Accordingly, grounds No.1 & 2 are dismissed as not pressed.

3. With regard to grounds No.3 & 4, learned AR submitted that the same issue is covered by the decision of ITAT in the case of assessee itself vide order dated 30-8-2011 passed in ITA No.784, 785 &786/mum/2010 for the assessment years 2000-2001, 2001-2002 & 2002-2003. Learned Senior DR relied upon the findings of the Assessing Officer as well as the CIT(A).

4. We have heard the rival parties and also considered the orders of the Assessing Officer as well as of the CIT(A). The assessee is a cooperative housing society. The issue involved is the receipt of Rs.29,67,394/- from leasing out the portion of terrace of the building and the wall to one Smt. Sudha Vora for the purpose of fixing of hoarding, neon sign, etc. would be treated as Income from house property” or it should be taxed under the head “income from other sources”.

4.2. The Assessing Officer after referring to various clauses of the agreement entered into by the assessee and Smt. Sudha Vora, came to the conclusion that it is “income from other sources”.

The CIT(A) too has confirmed the finding of the Assessing Officer, though in an ex-parte order. However, this issue has come up for consideration in the earlier years also, wherein the ITAT Mumbai Bench after referring and relying upon several decisions has held the receipts to be taxed under “income from house property”. The relevant finding as a whole as given by the ITAT are reproduced herein below:-

“3. In the appeal for assessment year 2000-01, the sole issue raised by the assessee is, whether the income received by the assessee on lease of a portion of terrace of the building and a wall of the building to one Mrs. Sudha Vora, for the purpose of fixing of hoarding, neon sign, etc., is assessable under the head “Income From Business or Profession” or under the head “Income From Other Sources”. The Assessing Officer assessed the income under the head “Income From Other Sources” on the ground that the amount received by the assessee is not for letting of a building or terrace or any land appurtenant thereto but on account of allowing to display the advertisement of neon sign, illuminated hoarding, of a size of 60’ x 20’ on the terrace and also illuminated hoarding of size of 20’ x 50’ on a vertical wall of the building are facing Padder Road.

4. On appeal, the Commissioner (Appeals) rejected the contention of the assessee on the ground that the terrace is not let out to Mr. Sudha Vora, and she has been allowed to use the terrace only to set-up the hoarding and to display the hoarding. He also commented that she could use only a portion of the terrace and that the purpose of utilization is not for stay, etc. The Commissioner (Appeals) distinguished the decision of the Delhi Bench of this Tribunal relied upon by the assessee. Aggrieved, the assessee is in further appeal before the Tribunal.

5. Before us, the learned Counsel relied on the following case laws:-

ITO v/s Cuffe Parade Sainara Premises Co. Op. Society Ltd., ITA no.7225/Mum./2005, order dated 28.4.2008;
Dalamal House Commercial Complex Premises Co. Op. Society Ltd. v/s ITO, ITA no.2286/Mum./2008, 29.5.2009;
Sharda Chambers Premises Co. Op. Society Ltd. v/s ITO, ITA no.1234/Mum./2008, order dated 1.9.2009;
Matru Ashish CHS Ltd. v/s ITO, ITA no.316/Mum./2010, order dated 27.8.2010;
S. Sohan Singh v/s ITO, 16 ITD 272 (Del.); and
CIT v/s Bajaj Bhavan Owners Premises Co. Op. Society Ltd., Income Tax Appeal no.3183 of 2010 (Bom.)
6. In Bajaj Bhavan Owners Premises Co. Op. Society Ltd. v/s ITO, Mumbai “B” Bench of the Tribunal in ITA no.5048/Mum./2004, assessment year 2001-02 and ITA no.1433/Mum./2007, for assessment year 2002-03 and ITA no.1434/Mum./2007, for assessment year 2003-04, order dated 4th November 2009, has, at Page-16 / Para-36, brought out the facts as follows:-

“36. The brief facts of the above issue are that it was found by the Assessing Officer that the assessee has allowed M/s. Hutchison Max Telecom Ltd. to erect the tower on their terrace in consideration of an amount of ` 5,93,700 and claimed as income from house property subject to deduction under section 24 of the Act. However, the Assessing Officer while observing that the assessee’s society has not provided any house property to the company and it is only the open terrace which has been let out, treated the same as assessable under the head income from other sources without allowing any expenditure in this regard. On appeal, the learned CIT(A) while confirming the Assessing Officer’s action treating the income from other sources directed the Assessing Officer to allow 20% of the gross receipts as expenses to earn such income.”

7. The Tribunal, after considering rival submissions, at Pages-17 & 18, Para-39, held as follows:-

“39. After carefully hearing the submissions of the rival parties and perusing the material available on record, we find that the facts are not in dispute. We further find that in the case of Sharda Chamber Premises v/s ITO, in ITA no.1234/Mum./2008, dated 1.9.2009, for A.Y. 2003-04, in which JM was one of the party, on the similar facts, the Tribunal after considering the decision in ITO v/s Cuffe Parade Sainara Premises Co. Op. Society Ltd., ITA no.7225/Mum./2005, dated 28th April 2008, for A.Y. 2002-03 and also the decision in the case of S. Sohan v/s ITO (1986) 16 ITD 272 supra, has held vide Para-6 and 7 of its order dated 1.9.2009, as under:-

6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. counsel for the assessee that in the case of M/s. Dalamal House Commercial Complex Premises Co. Op. Society Ltd., the Tribunal while admitting the additional ground being a legal issue has also held that the letting out of the terrace erection of antenna and income derived from letting out has to be taxed as “income from house property” and not as “income from other sources”. The Tribunal while deciding the issue has followed the order of the Tribunal in the case of M/s. Cuffe Parade Sainara Premises Co. Op. Society Ltd. supra.

7. In the absence of any distinguishing feature brought on record by the revenue, we respectfully following the order of the Tribunal (supra) and keeping in view the consistency while admitting the additional ground taken by the assessee hold that the letting out of terrace has to be assessed under the head “Income From House Property” as against “Income From Other Sources” assessed by the Assessing Officer and also allow deduction provided under section 24 of the Act and accordingly the additional ground taken by the assessee is allowed.

Respectfully following the order of the Tribunal supra, we are of the view that the letting out of the terrace has to be assessed under the head income from house property subject to deduction u/s 24 of the Act as against income from other sources assessed by the Assessing Officer. We hold and order accordingly. The grounds taken by the assessee are therefore allowed.”

8. The Hon’ble Jurisdictional High Court in Income Tax Appeal no.3183 of 2010, vide judgment dated 16th August 2011, confirmed the aforesaid findings of the Tribunal vide Para3, which reads as follows:-

“3. As regards question (c) is concerned, counsel for the revenue states that the ITAT has allowed the claim of the assessee by following its decisions in the case of Sharda Chamber Premises v/s ITO and ITO v/s Cuffee Parade Sainara Premises Co. Op. Society Ltd. Counsel for the revenue fairly states that the appeals against the said decisions have not been filed by the Revenue in view of the smallness of the tax effect. However, the counsel for the revenue is not in a position to point out any error in the orders passed by the ITAT. In this view of the matter, we see no reason to entertain the appeal on question (c). In the result, the appeal is dismissed with no order as to costs.”

9. Keeping in view of the aforesaid binding judgment of the Hon’ble Jurisdictional High Court, we set aside the impugned order passed by the Commissioner (Appeals) and allow this ground raised by the assessee directing the Assessing Officer to assess the income in question under the head “Income From House Property”

4.3 Thus, the finding has already been given by the ITAT in the earlier year, therefore, respectfully following the same, it is held that income in question is to be taxed under the head “income from house property” and accordingly the Assessing Officer is directed to compute the income under the head “ income from house property “. In the result, grounds No.3 & 4 are allowed.

5. In ground No.5, the assessee has challenged the taxing of the sum of Rs.17,101/- from sale of scrap as business income. The Assessing Officer has treated the sale of scrap as business income on the ground that it was with the intention of making gain and is not covered by the principle of “mutuality”. The learned AR submitted that the assessee is not engaged in any kind of business as it is a cooperative housing society and in any way such a miscellaneous income will go to reduce the cost of renovation which the assessee was carrying out during the relevant year. Learned Senior DR strongly relied on the finding of the CIT(A) and the Assessing Officer.

6. After carefully considering the finding of the Assessing Officer as well as the contention of the parties, we are of the opinion that miscellaneous income by way of sales scrap cannot be treated as business income of the assessee as it is not carrying on any business activities of sale of scrap. The scrap has been generated on account of repairs and renovation which will go to reduce the cost of renovation as has been done by the assessee. Therefore, such a miscellaneous income cannot be treated as business income of the assessee. Accordingly, ground No.5 is treated as allowed.

7. So far as ground No.6 is concerned, the assessee has challenged the addition of Rs.30,914/- made by the Assessing Officer on account of non-occupancy charges as income from the business not covered under the principles of “mutuality”. Learned AR submitted that the assessee’s case is covered by the decision of the ITAT Mumbai Bench passed in ITA No.6325/Mum/06 for the assessment year 2003-2004 vide order dated 14-5-2009 in the case of the assessee itself. On the other hand, the learned Senior DR relied upon the findings of the Assessing Officer.

8. We find that this issue is already covered by the decision of the ITAT in ITA NO.6325/Mum/06 for the assessment year 2003-2004 and also by the decision of the Hon’ble Jurisdictional High Court in the case of Mittal Court Premises Cooperative Society Limited Vs. ITO, reported in (2010) 320 ITR 414 (Bom), holding that non-occupancy charges will not be taxable on the ground of principle of “mutuality”. Accordingly, ground No.6 raised by the assessee is treated as allowed.

9. Both the parties have fairly agreed that ground No.7 will be rendered infructuous if the grounds No.3 & 4 are decided by holding that the income should be charged under the head “income from house property”. Since, we have already held that income from hoarding should be treated as “income from house property”. The alternative claim for deduction under Section 57(iii) will become purely academic and, therefore, ground No.7 is dismissed as having been rendered infructuous.

10. Resultantly, the appeal filed by the assessee is partly allowed.

Order pronounced on this 11th day of May, 2012.

Capital & Revenue Receipts & Expenses in Housing Society

By. Ramesh S. Prabhu .

To ascertain the true results of a Society for a particular period it is very important that all expenses are properly classified between Revenue and Capital. For this purpose, some broad guidelines have been given below which are not exhaustive but only indicative of the basis to be followed.
CAPITAL EXPENDITURE:
Capital expenditure usually provides benefits over a long period of time. In other words, the benefit of this expenditure is not exhausted in the year in which the expenditure has been incurred but is available over a number of years. i.e. It affects the future periods. The following are usually treated as capital expenditure.
1) Expenditure which results in creating or acquiring a permanent asset e.g. land, building, machinery etc.
2) Expenditure in connection with the purchase, receipt or erection of a fixed asset e.g. expenses on the erection of plant and machinery, import duty paid, inters on the loan raided to purchase a fixed asset etc.
3) Expenditure in connection with extension or improvement of fixed assets resulting in increase in profit earning capacity e.g. amount spent on increasing the seats in the cinema hall.
4) Major repairs and replacement of parts which leads to increased efficiency of a fixed asset.
5) Expenditure incurred to acquire the right to carry on a business e.g. patent right, copyright, trade mark etc.
6) Expenditure incurred on a second-hand or used asset to restore its operational efficiency e.g. overhaul of a second-hand machine, that is to say that all amount spent upto the point as assests is ready for use.
REVENUE EXPENDITURE:
Revenue Expenditure usually provides benefit over a short period of time. In other words, the benefit of this expenditure is not likely to be available for more than one year.
It affects the income of the current period. The following are usually treated as revenue expenditure:
1) Expenses incurred in the ordinary course of business eg. Rent, salaries etc.
2) Expenses incurred to maintain the business e.g. replacement for maintaining the existing permanent assets, cost of stores consumed in the course of manufacturing.
3) Cost of goods purchased for resale.
4) Depreciation on fixed assets.
DEFERRED REVENUE EXPENDITURE
At times, certain expenditure of revenue nature is incurred which is unusually heavy and its benefit is likely to be available for number of years. In such a case, it is considered appropriate to spread the cost of this expenditure over a number of accounting year. This type of expenditure is known as “Deferred Revenue Expenditure” E.g. Preliminary Expenses, brokerage on issue of shares, debentures etc.
CAPITAL AND REVENUE RECEIPTS
It is very important to differentiate between income and other receipts (Capital Receipts) to ascertain true profits of a business. Some important factors guiding classification of receipts between capital can revenue nature are given below.
-If the receipt is commercial in nature yielding income, it is revenue but if it is received as a result of parting some property it is a capital receipt.
-A receipt on account of current assets such as stock, debtors etc, is a revenue receipts while receipts on account of fixed asset is a capital receipt.
-Where the receipt is in lieu of a source of income, it is a capital receipt but any other periodic receipt from such source on a regular basis while keeping the source intact is a revenue receipt.

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