When the persons come together with common object of housing, after formation of a Cooperative Society, they are governed under rules and bye-laws of Maharashtra Cooperative Societies Act. So far as the members are concerned, the Cooperative Housing Society can collect or increase its funds only by legally permissible charges or fees.
Housing Societies cannot demand transfer fees of more than Rs.25,000/- which is fixed as per the bye-laws No. 38 and section 38(e)(ix)of the Cooperative Housing Society, i.e., Notice of transfer of shares and interest in the capital/property of the Society . Circular issued on 9 th August, 2001 by the Government in respect of transfer fee by which the transfer fee of the immovable property within the Corporation limit is fixed as Rs.25,000.
The Bombay High Court in Sind Cooperative Housing Society vs. Income-tax Officer, reported in (2009) 317 ITR 47 made it clear that the amount which is accepted above the permissible limit towards the transfer fee is illegal or taxable. It was held that whether it is voluntary or not would make no difference to the principle of mutuality. Payments are made under the bye-laws which constitute a contract between the society and its members which is voluntarily entered into and voluntarily conducted as a matter of convenience and discipline for running of the society. If it is the case that the amounts more than permissible under the notification had been received under pressure or coercion or contrary to the Government directions, then considering section 72 of the Contract Act, that amount will have to be refunded.
The Court also held that if the society retains the amount in excess of the binding Government notification or the bye- laws that amount will be exigible to tax as it has an element of profiteering.
In Alankar Sahkari Griha Rachana Sanstha Maryadit Vs. Atul Mahadev Bhagat the Bombay High Court had to consider a case where the Society demanded Rs 5 lakh for permission to transfer. It was held that the question was whether the amount of Rs.5,00,000/- was paid voluntarily towards donation. While deciding this, one has to see who is in advantageous or dominant position.
The Court dissented from the single Bench judgement in the case of Bharatiya Bhavan Cooperative Housing Society Ltd. & Anr. vs. Smt. Krishna H. Bajaj & Ors., pronounced on 17th February, 2010, where with regard to a similar issue of payment to the Society by the member, the member and Society had entered into written agreement and the Judge has held that the member cannot fall within the protective umbrella of Section 72 of Contract Act if the party with knowledge enters into void agreement for some illegal act, then she would not get protection under section 72 of the Contract Act but the party will fall within the mischief under section 23 of the Contract Act.
A person facing financial crises will not donate amount of Rs.5,00,000/- to the Housing Society. There is a ceiling of Rs.25,000/- for transfer fees, the Court noted.
It was pointed out that different ways are invented by the Society to earn more money other than legally permissible like the maintenance charges or transfer fees under the bye-laws. The incoming and outgoing member both are having a subordinate position and the Society enjoys a dominant status in transfer of the premises. The incoming member somehow wants the possession of the premises and share certificate to be transferred in his name without any hassle.
So also outgoing member, who is in need of money, wants to get rid of further complications and is interested in smooth transaction. For this reason, the consent of Managing Body by passing necessary resolution to that effect is required. Under such circumstances, it cannot be inferred that the outgoing/incoming member has paid the donation voluntarily.
The Court held that though the respondents had given admission that they paid Rs.5,00,000/- towards donation to the petitioner-Society, it cannot be further read that it was paid voluntarily without any pressure.
When the persons come together with common object of housing, after formation of a Cooperative Society, they are governed under rules and bye-laws of Maharashtra Cooperative Societies Act. So far as the members are concerned, the Cooperative Housing Society can collect or increase its funds only by legally permissible charges or fees.
The Society is not expected to indulge into profiteering business from the members and if such amount is earned, then it is taxable under the law. There is no bar for any member to pay donation to the Society, however, it should be voluntary without any compulsion and coercion. No manner the transfer fees can be charged under the pretext of donation.
It was held that from this conduct of taking immediate steps against the Society and challenging the said transaction, it can be safely concluded that the amount was not a donation but money was a transfer fee paid out of compulsion and it was not voluntary payment.
The Court directed that the amount be returned to the respondents with simple interest @ 8% p.a.