Supreme Court Judgement On Apartment Maintenance Charge

Apartment maintenance charge is the fees collected by the Resident Welfare Association or Society Management for keeping the common areas and facilities within a residential complex in good condition. It helps in maintaining swimming pools, gardens, playgrounds, security, and many other facilities shared within a residential complex.

The amount of the apartment maintenance charge depends upon the size of the flat, amenities, location of the property and other aspects related to the apartment. Primarily, the maintenance charges are calculated on a per square foot basis and usually falls within the range of Rs 2 to Rs 25 per square foot per month.

In India, Apartment Maintenance Charges are primarily governed by following laws:

• The Real Estate (Regulation and Development) Act, 2016 (RERA): This Act provides transparency in the real estate sector, concerning collection and maintenance of charges.

• The Cooperative Societies Act, 1912: This Act provides guidelines on the working of the housing societies along with collection of the maintenance fees from the members.

• Model Bye-Laws of Cooperative Housing Societies: Various states provide by-laws containing the provisions regarding payment of maintenance charges by housing societies.

These laws ensure proper collection and usage of maintenance charges for maintaining common areas and other amenities within a residential complex.

Landmark Judgements Pronounced By The Supreme Court On Apartment Maintenance Charge

Rasila S Mehta vs. Custodian, Nariman Bhavan, Mumbai (2011)

The Supreme Court of India, in the case of Rasila S Mehta vs Custodian, Nariman Bhavan, Mumbai, had dealt with the question of responsibility for maintenance and repair charges on attached properties under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. 

• The Court held that the Custodian is responsible for paying the maintenance and repair charges to the housing society for attached properties.

• The responsibility of paying the maintenance charges arises from the requirements to keep the values of the attached property intact.

• The Court recognised that the notified parties, being the owners of the attached properties, have a liability to pay the maintenance charges as per the rules governing cooperative housing societies.

• However, the Court stayed recovery of interest and penal charges on arrears of maintenance and repair charges against the appellants during pendency of litigation and appeals challenging the actions of the Custodian.

• The above exemption was based on the principle established in the case of Harshad Shantilal Mehta vs. Custodian & Ors that interest and penalty charges should not be levied on the notified parties for non-payment of maintenance and repair charges. 

Key Holdings:

• Liability for Maintenance: The Custodian is liable to maintain the attached properties so that their value does not depreciate.

• Liability of Owner: Notified parties being the owners of the properties, in general, are liable to pay the charges for maintenance.

• Exemption from punitive damages: In the case at hand, the Court exempted the interest and arrears due to the ongoing legal challenge in the Court.

The decision by the Court clarifies the liabilities and exemptions with regard to a charge for maintenance of properties attached under the Special Court Act.

Income Tax Officer, Mumbai vs. Venkatesh Premises Co-Op. Sty. Ltd. (2018)

In this case, the Court held that the apartment maintenance charges, non-occupancy charges, transfer fee, and common amenity fund charges collected by the cooperative societies from the members of the society are not taxable income under the doctrine of mutuality. This exemption is available as long as these funds are used for the mutual benefit of the members of the cooperative society. 

The Court provided the following explanation: 

• Doctrine of Mutuality: Doctrine of Mutuality is one of the common law principles. As per the doctrine of mutuality, no man should be allowed to take advantage of himself. Where persons contribute their resources towards the attainment of a common good, the surplus formed is considered an expansion of the common fund rather than taxable income. In the said case, it applies to cooperative societies where members contribute towards common expenses such as maintenance and amenities.

• Application to Apartment Charges: The Court held that transfer fees that are typically paid by the outgoing members are not taxable. The Court further observed that even if a portion of the transfer fee is recovered by the new incoming member, it does not signify any profit because these funds are utilised only after the new member is formally admitted in the society. Equally, the levying of non-occupancy paid by the members who are leasing their units are not subject to tax as they contribute to the general upkeep of the society which is beneficial for all the members. 

• Common Amenity Fund and FSI: The money collected towards common amenity funds generated through sale of properties from members is also non-taxable. These are used to undertake massive repairs and development that will ensure safety and well-being of all members. In societies where extra Floor Space Index (FSI) is used for new constructions, surplus money realised from new members for maintenance and other common facilities are not taxable either. The Court held that these receipts cannot be segregated from the cost incidental thereto and treated as income generated by commercial activity.

• Notification Applicability: The Court also clarified that a particular notification dated 09.08.2001 issued under the Maharashtra Cooperative Societies Act, which prescribed certain limitations on some charges, applies only to cooperative housing societies and not to premises societies that consist of non-residential premises.

In other words, the judgement of the Court reinforces the application of the doctrine of mutuality to apartment maintenance charges and other related fees in the cooperative societies. This exempts these fees from income tax as long as these funds are used for the shared benefit of all the members of the cooperative society. 

The Managing Director (Shri Grish Batra) M/S Padmini Infrastructure Developers (I) Ltd. vs. The General Secretary (Shri Amol Mahapatra) Royal Garden Residents Welfare Association (2021)

In this case, there existed a dispute regarding maintenance charges. It involved the complainant, Royale Garden Residents Welfare Association, and the opposite party/builder, M/s Padmini Infrastructure Developers (India) Ltd., regarding the liability of the builder to pay a monthly maintenance charge for the unsold flats. This dispute arose after the Residents Welfare Association took over the maintenance of the apartment complex.

• The grievance of the Residents Welfare Association was that the builder should pay the monthly maintenance charge for all the unsold flats amounting to Rs 9,05,810. This grievance was based on Clause 10 of the Agreement dated 15.11.2003. Clause 10 of the Agreement provided that the builder would pay the monthly maintenance fee of 50 paise per square foot for all the unsold flats.

• This amount was disputed by the builder. The builder contended that they were liable only for Rs 2,32,750.

Ultimately, the National Commission rejected the claim of the Residents Welfare Association for maintenance charges. The order of the National Commission was further upheld by the Supreme Court. The Courts found the claims of the Residents Welfare Association due to the following reasons:

• Lack of Detailed Calculation: The Court held that the Residents Welfare Association had not provided a calculation of the plinth area of unsold flats, period during which the flats remained unsold, and how they arrived at the claimed amount of Rs. 9,05,810.

• Time-Barred Claim: As per the Agreement, the builder was required to make an initial advance payment of six months within seven days of signing the agreement. This was to be followed by yearly advance payments.  Thus, at the time of filing the complaint, a significant portion of the monetary claim of the Residents Welfare Association was time barred.

• Disputed Question of Fact: The amount of maintenance dues was the bone of contention, as the parties failed to present figures matched with sufficient proofs of the respective claims.

These issues made the Court reject the relief prayed for by the Residents Welfare Association on this matter.

Utpal Trehan vs. DLF Home Developers Ltd. (2022)

In this case, the complaint regarding maintenance charges arose from the fact that the builder, DLF Home Developers Limited had demanded maintenance charges from the allottee, Utpal Trehan even when the latter had not even possessed the flat.

• The State Commission initially ruled in favour of the builder. The State Commission held that the allottee was liable to pay for the maintenance charges, IBMS (Interest Bearing Maintenance Security) and holding charges.

• However, on appeal, the Supreme Court of India reversed this order by stating that the National and State Commissions were wrong when they directed the allottee to pay all those charges to the builder.

The grounds on which the Supreme Court rested its decision are as follows:

• The Agreement of the Apartment Buyer defined “Maintenance Agency” as either the builder or an association of allottees. Hence, maintenance charges could be collected by the builder only if the builder continued to carry out maintenance works.

• New Town Heights Condominium Association was a separate legal entity. After vesting the New Town Heights Condominium Association with this task of maintenance, the builder was not the “Maintenance Agency”. Consequently, it had no right to collect the charges.

• The Court found no evidence to prove that the association was acting as the agent of the builder in collecting the charges. 

• It is also pertinent to mention here that the Supreme Court held that the association, which was the rightful recipient of the maintenance charges, was not a party to this proceeding and had never filed any claim.

The Court held that the dispute merely points to a discrepancy between the terms of contractual obligations of allottees to pay maintenance fees with the builder not being entitled to the right to collect them after the transfer of maintenance responsibility to a third-party association.

Frequently Asked Questions (FAQs)

Question-How are the apartment maintenance charges calculated?

Answer- Maintenance charges are usually calculated on the basis of the square footage system. The cost may range from Rs. 2 to up to Rs. 25 per square foot per month.

Question- Is it mandatory to pay the annual maintenance fees?

Answer-Yes, as per the part of the contract with the builder or the society management, it is a liability to pay the annual maintenance fees.

Question-What does the maintenance fee cover?

Answer-The maintenance fee covers the maintenance cost of common facilities and amenities such as swimming pools, gardens, playgrounds, and security, among other common amenities.

Question-Can there be any increment in the maintenance charges?

Answer-Yes, maintenance charges can be increased. However, any increase in the maintenance charges must be approved by members of society collectively in a general body meeting and must be recorded in the minutes.

Question-Who is responsible for collecting the maintenance charges?

Answer-The Resident Welfare Association or the management of the society collects the maintenance charges from the flat owners.

Question-Is GST payable on apartment maintenance charges?

Answer-GST is generally not levied on apartment maintenance charges as these maintenance charges fall within the definition of a service offered by the society to the members of the society.

Question-How often will the maintenance charges be levied?

Answer-Maintenance charges are usually recovered on a monthly basis, except in cases where otherwise agreed or specified by the society, by virtue of the rules and regulations of the society.

Question-Can flat owners raise objections regarding maintenance charges?

Answer-Yes, they can certainly raise objections regarding maintenance charges based on the ground that maintenance charges are arbitrary or unreasonable. This can be done either through the grievance redressal mechanism of the society or at consumer courts.