How much real estate companies can levy as transfer tax under the law

What is the maximum amount that real estate companies can collect as property transfer tax when selling / buying real estate? We are looking at some HC Bombay verdicts to answer this question.

3 bhk flat for sale in kharghar, The Maharashtra government recently raised the stamp duty of 1% on, among others, sales, gifts and transfers, and there is room for further increases in stamp duty and registration tax. However, one uncertainty looming over apartment owners and buyers is a little closer to home: the collection of relocation fees by a cooperative housing company (corporation) on the sale and transfer of ownership. quotas and rights to apartments in the house.

How much real estate companies can levy as transfer tax under the law

Companies insist on the payment of a transfer commission during the sale of shares and rights in an apartment by a participant, which ranges from Rs 25,000 to even a percentage of the purchase price when the apartment is sold.

Transfer Fee: Maximum amount allowed by law.

The owner and buyer of an apartment who need the company’s cooperation to change the buyer’s name on the certificate of participation usually have no choice but to consider the company’s requests. The question is whether the law permits the company to charge excessive fees for the transfer.

The answer can be found in Regulation 38 of the 2013 Model Company Articles of Association, as formulated in the Maharashtra Cooperative Societies Act 1960, as read in a circular dated August 9, 2001 issued by the Maharashtra government. The above-mentioned Law No. 38 and the circular of August 9, 2001 clearly state that the amount of the premium set by the company for the sale of apartments may not exceed Rs 25,000.

Many companies often require the owner / buyer of the apartment to pay the requested amount through a “voluntary donation” to avoid falling into the above transfer quota. However, Statute No. 38 also covers this possibility and goes further by specifying that “no additional amount for a donation or contribution to any other fund or under any other pretext will be recovered by the transferor or recipient”.

Legal decisions regarding transfer fees

The legality of the payment of the translation commission charged by the company has been repeatedly verified by the courts in recent years. Bombay High Court in Bharatiya Bhavan Cooperative Housing Society Limited et al. V. Krishna H. Bajaj et al. (Petition No. 1094, 2004, no.February 17, 2010) accepted the company’s appeal, thereby depriving the buyer of the opportunity to receive compensation in the amount of Rs 9.63,000 paid to the company during the sale of the apartment as a contribution.

During an appeal hearing in the Bombay High Court, the apartment buyer contested that the voluntary contribution was nothing more than a transfer fee requested by the company, that the apartment owner had no choice but to pay. The Bombay High Court noted that the buyer of the apartment in this case, knowing the exact legal situation, entered into an agreement with the company for the payment of transfer tax in the amount of Rs 9.63,000 on behalf of a voluntary contribution.

As part of the above decision, the buyer of the apartment requested special permission from the Supreme Court of India (SLP No. 11266 of 2010, decision of November 9, 2011). The Oversight Committee stated that it did not fully agree with the reasons given in the above-mentioned decision of the Bombay High Court.

However, SC could not overturn the decision of the Bombay Supreme Court on the grounds that the buyer of the apartment had not challenged the company’s decision to fix the moving costs and the buyer had contested the ‘apartment more than two years after payment of the donation.

The transfer of charges has now been resolved by the decision of the Bombay High Court in the case of Alankar Sahkari Griha Rachan Sanstha Maryadit v. Atul Mahadev and others (written request No. 4457 of 2014, judgment of 6 August 2018), where the Bombay High Court disagreed with the verdict of the Bombay High Court in the Krishn H. Bajaj case, and ruled that since the buyer of the apartment had taken immediate steps to dispute the payment of the transfer, it could not be concluded that it was a voluntary donation, but only on the forced payment of the transfer fee.

In the Alankar Sahkari case, relying on the company’s charter and circular of August 9, 2001, the Bombay High Court noted that there is a ceiling of Rs 25,000 for transfer fees and that various methods have been applied. were invented by companies to make more legal money. in an unacceptable way.

How much real estate companies can levy as transfer tax under the law

Moreover, the Bombay High Court in the Alankar Sahkari case recognized that in a situation where the buyer of the apartment wishes a smooth transaction and the transfer of the share certificate in his name, the company occupies a dominant position. . In such circumstances, the company asks the buyer of an apartment to pay exorbitant amounts under the guise of “voluntary donations”.

The Bombay High Court said the company could only raise funds from statutory fees or commissions and members should not make a profit. If there are no restrictions on the payment of donations to the company, it must be done without any constraint or constraint, and the company cannot in any case charge transfer fees under the pretext of a donation. .

Bombay HC Decision on Property Transfer Fees

The Bombay High Court ruling in the Alankar Sahkari case has set the stage for any apartment owner or buyer to challenge the company’s exorbitant demands for relocation fees, whether it be a voluntary donation. Or other. Although the remedies and the law have been established fairly, the question remains whether the apartment buyer is willing to take violent legal action with the community he hopes to stay in for the foreseeable future. However, in companies where there is currently no decision to collect transfer bonuses in the form of voluntary donations or otherwise, members should object to such a decision, as it is contrary to the spirit of the law. Such action can only be stopped if members raise objections in a timely manner.

Can the board of directors of a real estate cooperative be dissolved?

In 2020, in Maharashtra, the deputy district chancellor dismissed the entire board of directors of the Katraj (Pune) housing cooperative society. The council adopted a general authority decision imposing a 1.25 lakh tax as a public charge for issuing a compliance notice for the transfer of an apartment on behalf of the buyer.

As already mentioned, the law on cooperatives provides for a payment of Rs 25,000. The council acted in violation of the rules and was therefore dissolved. In addition, the deputy director also banned company executives from participating in elections for the next six years. This underlines the fact that it is illegal and punishable to charge exorbitant transfer fees.

Note:

The Company may charge a transfer fee of 2.5% of the difference between the book value of the apartment and the price sold by the issuing party at the time of delivery of the apartment, or a maximum of Rs 25,000, whichever is less.

Article 79 of the law on cooperatives states that the insurance premium must not exceed 25,000 rupees.

Although the transfer fee cannot exceed Rs 25,000, it can be reduced if the authority decides.

On 10 August 2019 the disqualification order was issued by the steering committee in violation of the regulation.

Are developer transfer fees legal?

Although the transfer fees of the housing and services company are legal, if they do not conflict with the regulations, the developer cannot collect the transfer fees from the owner of the apartment. However, you may have heard of unscrupulous developers asking for transfer fees.of. Most complaints against the developer in such a scenario arise when the buyer turns to the developer for the NOC and the builder can exert influence to manipulate the home buyer. However, this is illegal for the following reasons:

This is contrary to the Transfer of Ownership Act 1882, which states that “the transfer of ownership passes immediately to the receiving party, all interests which he may then transfer into the property and in the legal cases associated with it.”.

It is against the Indian Contract Act 1872 because it violates the buyer’s property rights.

It’s not like the transfer fee charged by the co-op. The cooperative is the legal owner of the building and land and the buyer is the shareholder. The developer has no such rights.

Buyers should check if those developers who claim to charge relocation fees on behalf of the real estate co-op are really trying to discourage community training.

A builder who attempts to deceive a home buyer into paying a relocation fee may be punished under Articles 384 and 385 of the Indian Penal Code (IPC). This is also prohibited by the 2007 competition law and constitutes the so-called “abuse of dominant position”.

 

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