PROBLEM OF TRANSFER OF FLAT IN A CO-OPERATIVE HOUSING SOCIETY
BY 
MAHABALESHWAR N. MORJE 

One of the objects of the Co-operative Housing Society was to have better management and better living with the Co-operation.  However, in view of the various difficulties faced by the members of the society it has become very difficult to transfer the Flats from one member to another.
When a Flat is purchased or sold in a Co-operative Society, the Transferor and Transferee have to overcome the barriers of various Laws including: -
a)   Maharashtra Co-operative Societies Act, 1960 and the Rules there under;
b)    Provisions of Indian Registration Act, 1908;
c)    Provisions under the Bombay Stamp Act, 1958; and
d)    Provisions of Income Tax Act, 1961.

Important Questions and Answers
Q.1 What are the provisions regarding Transfer of Flats ? 
Q.2 What are the provisions regarding Transfer of Flats in New Model Bye-laws ?
Q.3 Whether the parties are required to pay Stamp Duty when the Transfer is effected from one member to another member ?
Q.4 In what year's assessment, capital gains should be considered in case of transfer of immovable property, where part payment is received and possession is handed over?
Q.5 Section 54 and 54F provide for a deduction in case where an assesses has, within a period of one year before or two years after the date of which the transfer of a Capital Asset takes place, purchased or has, within a period of three years after the date, constructed a residential house. Whether the cost of land purchased shall be included in the cost of Construction for the purpose of allowing deduction under section 54 and Section 54F?
Q.6 Whether the Members of Managing Committee can object the transfer of flat even if it is within the provisions of co-operative Societies Act, Rules there under and bye-laws of the Society?
Q.7 Whether Registration of Agreement for Resale or subsequent sale in a co-operative housing society is mandatory when the society is already registered? is the circular issued by Joint Divisional Commissioner on 4th November 1984 is mandatory ?
Q.8 What are the provisions where the Value of the Flat is more than Rs. 75 Lakhs ?


Q.1 What are the provisions regarding Transfer of Flats ? 
Ans.   Section 29 of the Maharashtra Co-operative Societies Act, 1960 and Rule 24 of the Maharashtra Co-operative Societies Rules, 1961 and Bye-laws 19,20, 71(a), (b) and (c) are the major provisions which are concerned with the Transfer of Flats.

  Section 29 of the Maharashtra Co-operative Societies Act refers to the restrictions of transfer or charge on share or interest. The member who intends to transfer his/her Flat should hold share or interest for not less than one year, which means he/she cannot transfer his/her Flat in a Co-operative Society if he/she is holding the shares or interest for less than one year.
   Maharashtra Co-operative Societies Rules, 1961 (Rule 24) states as follows:-
  " 24.   Procedure for Transfer of Share (1) No transfer of share shall be effective unless:-

(a) It is made in accordance with the provisions of the Bye-laws;
(b) A clear fifteen days notice in writing is given to the Society indicating therein the name of the proposed Transferee, his/her consent, his/her application for membership, and where necessary, indicating the value proposed to be paid by the transferee;
(c) All liabilities of the transfer due to the Society are discharged; and
The transfer is registered in the book of the Society. Any charge in favour of the Society on the share so transferred will continue unless discharged otherwise."
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Q.2 What are the provisions regarding Transfer of Flats in New Model Bye-laws ?
Ans.     After completing these requirements the application is placed before the Managing committee for transfer and Managing Committee will examine whether the party to transfer has paid the necessary transfer fee. Bye-law 40 of New Model Bye-law prepared under the Co-operative Societies Act, refers to the following requirements, viz. :- 
    A member, desiring to transfer his/her shares and interest in the capital/property of the society, shall give fifteen days notice of his/her intention to do so to the Secretary of the Society in the prescribed form, along with the consent of the proposed Transferee in the prescribed form. 

    On receipt of such notice, the Secretary of the Society shall place the same before the meeting of the Committee, held next after the receipt of the notice, pointing out whether the member is prima facie eligible to transfer his/her shares and interest in the capital/property of the Society, in view of the provisions of Sections 29 (2) (a) of the Act. 
    In the event of ineligibility of the member to transfer his/her shares and interest in the capital/property of the Society, the Committee shall direct the Secretary of the Society to inform the member accordingly within 3 days of the decision of the Committee. 
    If the Committee is satisfied that the member is prima facie eligible to transfer his/her shares and interest in the capita/property of the Society the Committee shall direct the Secretary of the Society to inform the member within 3 days of the decision of the Committee to make the compliance as under :- 

      • to submit an application for transfer of his/her shares and interest in the capital/property of the Society in the prescribed form along with the Share Certificates; 
      • to submit an application for membership of the proposed Transferee in the prescribed form; 
      • to give valid reasons for proposed transfer; 
      • to discharge all the liabilities to the Society; 
      • to pay the Transfer Fee of Rs. 50/-; 
      • to remit Entrance Fee of Rs. 10/- payable by the proposed Transferee; 
      • to pay the amount of premium at a rate to be fixed by the General Body Meeting not exceeding 5 percent of the difference between the Book Value of the Flat and the price realised by the Transferor, on transfer of his/her Flat, subject to a maximum of Rupees One Thousand only; 
      • to submit "No Objection Certificate", required under any Law for the time being in force or order or sanction issued by the Government any Financial Agency or any other Authority; 
      • to furnish the undertaking/declaration in compliance with the provisions of any Law for the time being in force, in such form as is prescribed under these Bye-laws. The transfer Fee varies from Society to Society though Clause (vii) of Bye-law 40 has given certain guidelines mentioned therein. Inspite of the said guidelines some Societies charged even more than Rs. 1,00,000/- for the transfer of Flat which some times called as "Welfare Fund". There is a Judgement of a Tribunal which says that Society cannot take more than Rs. 1/- as Transfer Fee.
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Q.3 Whether the parties are required to pay Stamp Duty when the Transfer is effected from one member to another member ?
Ans.     In this connection it is pertinent to note that a Dispute was filed under Section 91 of the Co-operative Societies Act at Co-operative Court at Bombay, where in it is held that the Society cannot object the transfer arbitrarily and unless it get special reason for implementation by its Bye-laws for restricting transfer. The Society has no concern regarding the change in Stamp Duty payable for the transfer and that cannot be a ground for giving consent to transfer and that cannot be a ground for giving consent to transfer the Society. It is held that Society is not concerned with penalty or imposition of penalty if any, under the Law as it would be borne by the Transferee member and most concerned of the transfer if so agreed between the parties, the parties, but the Society is least concerned with the variation that the imposition of Stamp Duty on the transfer and that would not come in the way for consideration giving consent or transfer to the Transferee from one member to another of a property held by a member in a Society. (Asian Paints Pvt. Ltd V/s. New M.P. Co-operative Housing Society Ltd., C.T.J Co-operative Tribunal decision page 697 - Patil J. ).

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Q.4 In what year's assessment, capital gains should be considered in case of transfer of immovable property, where part payment is received and possession is handed over?
Ans.   The basic rule is that capital gains are deemed to be income of the previous year in which the transfer giving rise to the gains takes place. Thus, the year of charges is the year in which the state, exchange, relinquishment etc. takes place. Where the transfer is by way of allowing possession of an immovable property in part performance of a contract, it is the year in which such possession is handed over. If the handing over of the possession precedes the entering into of the contract and the transferee is allowed the possession in part performance of the proposed contract the year of taxability of the capital gains is the year, in which the contract is entered into.
Q.5 Section 54 and 54F provide for a deduction in case where an assesses has, within a period of one year before or two years after the date of which the transfer of a Capital Asset takes place, purchased or has, within a period of three years after the date, constructed a residential house. Whether the cost of land purchased shall be included in the cost of Construction for the purpose of allowing deduction under section 54 and Section 54F?
Ans.   Yes, as per Circular No.667 (204 ITR(st) 103) if the amount of capital gain for the purpose of section 54 and the net consideration for the purposes of section 54F is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F provided that the acquisition of plot and also the construction thereon are completed within the period specified in these sections.
Q.6 Whether the Members of Managing Committee can object the transfer of flat even if it is within the provisions of co-operative Societies Act, Rules there under and bye-laws of the Society?
Ans.    "In absence of clear and unambiguous legal provisions to the contrary, it will not be in public interest nor in the interest of commerce to impose a ban on sale ability of these flats by a tortuous process of reasoning. The prohibition if intended by the legislature, must be in express terms (1974) 76 BOM LR 375 Reversed (Para 18,19)" Ref. Ramesh Himmatlal Shah vs. Harsukh J.Joshi AIR 1975 SC 1470. There is no absolute prohibition in the Act or in the Rules or in the Bye-laws against transfer of a member in the property belonging to the Society.  The only transfer which is void under the Act is one made in contravention of sub-sec. (2) of Section 17.  The Flat is owned by the Society and the allottee has a right or interest to occupy the same.  There is nothing in the language of Section 31 to indicate that the right to be sold in auction is not attachable in execution of the decree.  There is nothing in Section 31 to even remotely include a prohibition against attachment or sale of the aforesaid right to occupation of the flat.  (Para. 17,18)
Q.7 Whether Registration of Agreement for Resale or subsequent sale in a co-operative housing society is mandatory when the society is already registered? is the circular issued by Joint Divisional Commissioner on 4th November 1984 is mandatory ?
Ans.   In the case of a tenant co-partnership housing society the title to the flat remains in the society and is not affected by the transfer of share in the society.  Only right to occupy the flat flows from the ownership of the share in such a co-operative society. The share thereby does not become immovable property. Transfer of such shares does not require registration under section 17(I)(b) of the Registration Act. Even if the transfer of such share is considered as the transfer of interest in immovable property, section 41 of the Maharashtra Co-operative Societies Act exempts the document affecting such transfer of share from the ambit of section 17(I)(b) of the Registration Act.  An award which deals with transfer of shares in a flat in a tenant co-partnership society does not require registration under section 17(I)(b) of the Registration Act 1908 Ref:- 1990 Mah. L. J. 306 (para 7 11) AIR 1980 Guj. 62 and AIR 1975 SC 1470, are relied on).
Q.8 What are the provisions where the Value of the Flat is more than Rs. 75 Lakhs ?
Ans.   Section 269-UA refers to the restriction of Transfer.  The said Section 269-UA Sub-section (a) refers to agreement of transfer. Originally the limit was up to Rs.10,00,000/-, however taking into account  in  changing circumstances  and  market value, it is now increased to Rs.75,00,000/-  from  1st October 1997. An agreement for transfer means agreements whether registered under the Registration Act, 1908 or not for the transfer of any immovable property is not registered can be included in the definition of agreement for transfer.
Under the new agreement a declaration is required to be made under Section 371, if the "No Objection Certificate" is not granted the parties cannot affect the transfer.

   The value of the Flat is more than Rs.10,00,000/- and  that  becomes  extremely difficult not  only  for  the transferor and Transferee but also even to the  Management of  the Society to know their problems before they  effect the transfer and as such the procedure for transfer of the Flat  should  be made easy and simple  and  it  should  be based  on certain provisions of Law and in the absence  of clear  guidelines and various difficulties, it gives  room for some of the members of the Managing Committee to  make the transfer of Flats in a Co-operative Housing Society  a source of Income by creating difficulties.

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    In case, one need further guidance please contact the Secretary, Flat Owners
Association, at the address given below:
(MAHABALESHWAR MORJE)

Gen. Secretary.

© Copyright 2002 , The Flat Owner's Association, Mumbai.
Updated  on 1st May 2002


23, Hamam Street, 3rd Floor , Above Quality Machine Tools , Fort , Mumbai - 400 023
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