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Updated on: Wednesday, May 29, 2019, 06:34 AM IST

HC: Hsg societies cannot indulge in profiteering biz

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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 of transfer fees can be charged under the pretext of donation,” Justice Bhatkar ruled.

Mumbai : In a significant ruling, the Bombay High Court on Friday held no cooperative housing  society could indulge in profiteering business. The HC has also ruled societies cannot compel members to pay heavy amounts as donations and even if some member pays such an amount, the same will be taxable.

The ruling was pronounced by a single-judge bench of Justice Mridula Bhatkar.

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In her order, Justice Bhatkar said, “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 in 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 of transfer fees can be charged under the pretext of donation,” Justice Bhatkar ruled.

The court was seized with a writ petition filed by a cooperative housing society challenging the orders of a Cooperative Societies Court, which directed the society to pay a total of Rs 5 lakh to Atul Bhagat.

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The orders were passed by the Cooperative Societies Court in response to a dispute filed by Bhagat seeking directions to the housing society to pay back the amount of Rs 5 lakh, which the housing society demanded as transfer fees.

According to Bhagat, he had a flat in the society, which he sold to a third party as he was in dire need of some money. The housing society, however, refused to grant a no-objection certificate (NOC) to the transaction and instead, demanded Rs 5 lakh under the pretext of transfer fees.

Before the Cooperative Societies Court, the society claimed it never demanded any money and instead, Bhagat himself paid this amount, voluntarily. It also contended that this amount being a donation, could not be taxable.

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Having considered the submissions, Justice Bhatkar noted that Bhagat was in dire need of money and thus he had to sell off his flat.

“A person facing financial crises will not donate amount of Rs 5 lakh  to the housing society. Therefore, different ways are invented by the society to earn more money other than legally permissible, like maintenance charges or transfer fees under the bye-laws,” the bench noted.

Justice Bhatkar further ruled, “The incoming and outgoing members 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.”

Accordingly, the court dismissed the housing society’s petition.

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Published on: Sunday, September 02, 2018, 12:38 AM IST
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