The Maharashtra Co-operative Societies Act, 1960 applies to both profit-oriented and not-for-profit societies. Co-operative housing societies fall under the latter category. In such societies, any surplus—defined as the excess of income over expenditure—is not considered 'profit'. This surplus typically remains in the society’s bank account or is invested in fixed deposits.
Section 66 of the Act mandates that 25% of profits be transferred to the reserve fund, which is relevant only for profit-making societies that declare dividends to shareholders. In those cases, the reserve fund allocation precedes dividend calculations.
However, for housing societies, which operate on a not-for-profit basis, it makes no sense to earmark surplus funds under specific fund names. Most housing societies do not maintain separate fixed deposits for each fund. In practice, the concept of 'funds' in financial statements often serves more as a presentational tool than a reflection of actual financial segregation. Attempts to reconcile the total of such funds with the sum of fixed deposits frequently prove unsuccessful.
Presenting the surplus or deficit directly in the balance sheet—without linking it to arbitrary fund labels—would offer a clearer and more accurate financial picture.
There should be distinct versions of the Co-operative Societies Act—one tailored for profit-making societies and another for not-for-profit entities. In the context of not-for-profit societies, terms such as 'surplus' and 'deficit' should not be equated with 'profit' or 'loss'. The conventional notions of profit and loss are not applicable to societies that do not operate with a profit motive.