Explanation to section 73 excludes financing companies from speculative loss treatment on share sales.

A company whose principal business is granting of loans and advances falls outside the deeming fiction in the Explanation to section 73 of the Income-tax Act, 1961. The assessee was registered as a non-banking finance company and the material showed that its main activity was financing and lending, so the statutory exclusion for banking or loan-and-advance businesses applied. As a result, the loss on sale of shares could not be treated as speculative loss under that Explanation, and the assessee succeeded on this issue.

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Issues: Whether loss on sale of shares could be treated as speculative loss under the Explanation to section 73 of the Income-tax Act, 1961 when the assessee was a non-banking finance company whose principal business was granting of loans and advances.

Analysis: The Explanation to section 73 deems certain companies carrying on purchase and sale of shares to be engaged in speculation business, but it excludes companies whose principal business is banking or the granting of loans and advances. The assessee's registration as a non-banking finance company and the material showing that its principal business was financing and lending established that it fell within the excluded category. In these circumstances, the deeming fiction could not be applied to the share-loss transaction.

Conclusion: The loss on sale of shares was not liable to be treated as speculation loss, and the assessee succeeded on this issue.

Ratio Decidendi: A company whose principal business is granting of loans and advances is outside the deeming fiction in the Explanation to section 73, so loss on sale of shares cannot be treated as speculative loss on that basis.

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