Silent Correction or Legislative Clarification? The Curious Case of “Person” vs “Persons” in the New Income Tax Act, 2025
Has a Potentially Significant Tax Controversy Been Quietly Resolved?
The transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 was projected as a legislative exercise aimed primarily at simplification, consolidation, and improving readability without substantially altering existing tax policy.
However, as tax professionals began closely examining the provisions of the new legislation, a seemingly minor drafting change attracted considerable attention.
A single word-more specifically, the shift from “persons” to “the person”-raised important questions regarding the carry-forward and set-off of losses in closely held companies.
Interestingly, while no major announcement, press release, explanatory memorandum, or official clarification appears to have been issued, the latest version of the relevant provision now seems to have quietly reverted to the original terminology.
The development raises an intriguing question:
Was this merely a correction of a drafting oversight, or does it amount to a substantive legislative change requiring a formal amendment?
The Position Under the Income-tax Act, 1961
Under Section 79 of the Income-tax Act, 1961, a closely held company could carry forward and set off business losses only if certain continuity of shareholding conditions were satisfied.
Broadly speaking, the provision required that on the last day of the relevant previous year, shares carrying at least 51% of the voting power should be beneficially held by the same “persons” who held such shares in the year in which the loss was originally incurred.
The use of the word “persons” was significant.
It recognized continuity at a collective shareholder level rather than requiring that one particular shareholder continue to hold the majority stake.
As a result, inter se transfers within a stable shareholder group generally did not jeopardize the carry-forward of losses, provided the group collectively continued to satisfy the prescribed voting power threshold.
The Drafting Change in the Income-tax Act, 2025
When the corresponding provision appeared as Section 119 in the Income-tax Act, 2025, practitioners noticed a subtle but potentially significant change.
The plural expression “persons” was replaced by the singular expression “the person.”
At first glance, the change may appear insignificant.
However, in tax law, a single word can alter the operation of an entire provision.
The revised wording immediately raised a practical concern:
What happens when shareholding changes within a shareholder group?
Consider a situation where:
• A group of shareholders collectively held more than 51% voting power when losses were incurred;
• The same group continues to hold more than 51% voting power in a subsequent year;
• However, individual shareholdings change due to inter se transfers.
Under the language of the 1961 Act, such continuity would generally remain intact because the focus was on the same “persons” collectively holding the shares.
But if the provision refers to “the person,” could it imply that a specific individual shareholder must continue to hold the required stake?
The ambiguity immediately became apparent.
Could the General Clauses Act Save the Provision?
One possible answer lay in Section 13(2) of the General Clauses Act, 1897.
This provision states that unless there is anything repugnant in the subject or context:
Words in the singular shall include the plural, and words in the plural shall include the singular.
Applying this principle, one could argue that the expression “the person” should be interpreted to include “persons” as well.
Such an interpretation would preserve continuity with the established legal position under Section 79 of the 1961 Act.
It would also align with the Government’s repeated assurance that the Income-tax Act, 2025 was primarily a drafting and simplification exercise rather than a policy overhaul.
However, while the General Clauses Act provides an interpretational safeguard, reliance on interpretative principles often invites litigation.
Taxpayers generally prefer certainty over interpretative rescue operations.
The Potential Litigation Risk
The change in wording created room for differing interpretations.
A taxpayer could argue:
• The legislative intent remained unchanged.
• Singular includes plural under the General Clauses Act.
• Continuity of shareholder groups should remain sufficient.
The Revenue, however, could potentially contend:
• Parliament deliberately replaced “persons” with “the person.”
• The change must be given meaning.
• A stricter continuity test was intended.
Even if such a contention ultimately failed, the existence of ambiguity itself would have generated avoidable disputes.
The Curious Development
What makes the issue particularly interesting is what appears to have happened subsequently.
Following amendments introduced through the Finance Act, 2026, the latest text of Section 119 reportedly uses the expression “persons” once again.
If this understanding is correct, the wording now substantially aligns with the language that existed under Section 79 of the 1961 Act.
This development effectively addresses the concern for future years.
However, it simultaneously creates a new legal puzzle.
Was There a Formal Amendment?
The first question that naturally arises is:
Was the change from “the person” to “persons” made through a formal legislative amendment?
If yes, the issue becomes relatively straightforward.
The amendment would represent Parliament’s conscious decision to restore the earlier language.
However, if the wording has changed without a clearly identifiable amendment mechanism, questions regarding legal validity and legislative process may arise.
After all, statutory text cannot ordinarily be altered merely through administrative action.
The authority to amend legislation rests with Parliament.
What About the Intervening Period?
Even more intriguing is the position for the period during which the expression “the person” remained in the statute.
If the subsequent restoration to “persons” is viewed as a correction rather than a substantive amendment, one may argue that the original legislative intent was always continuity of shareholder groups.
Conversely, if the restoration is treated as a genuine amendment, another question emerges:
Does the correction operate prospectively or retrospectively?
If prospective, then what happens to taxpayers affected during the intervening period?
Would the ambiguity continue to exist for that period?
Would litigation still arise regarding the interpretation of the earlier wording?
These questions remain open.
Substance Over Semantics
Viewed from a policy perspective, there appears to be little reason to believe that Parliament intended to fundamentally alter the operation of the loss carry-forward provisions merely by replacing “persons” with “the person.”
The entire legislative narrative surrounding the Income-tax Act, 2025 has emphasized simplification and restructuring rather than substantive policy shifts.
Therefore, many professionals may view the apparent restoration of “persons” as a correction of a drafting anomaly rather than a deliberate policy reversal.
Yet tax law often teaches us that even drafting anomalies can become major litigation issues if not addressed with precision.
Key Takeaways
The episode offers several interesting lessons:
• Small drafting changes can have significant substantive implications.
• The replacement of “persons” with “the person” created genuine interpretational uncertainty.
• Section 13(2) of the General Clauses Act may support a harmonious interpretation.
• The latest text of Section 119 appears to have restored the word “persons.”
• Questions remain regarding the legal basis and timing of such restoration.
• The position during the intervening period may still invite debate.
• Legislative clarity is always preferable to interpretational uncertainty.
Conclusion
The apparent return of the word “persons” in Section 119 of the Income-tax Act, 2025 may have quietly resolved a potentially significant controversy relating to the carry-forward of losses by closely held companies.
However, the episode raises broader questions about legislative drafting, statutory interpretation, and the legal effect of textual changes that appear without much public discussion.
Whether this was a silent correction, a legislative clarification, or a formal amendment may continue to be debated. What is certain, however, is that the incident serves as a reminder that in tax law, even the difference between a singular and a plural can carry substantial consequences.
For now, the latest text appears to restore comfort and continuity. Yet for tax professionals, the story remains a fascinating example of how a single word can generate an entire chapter of tax controversy.
The copy of the extracts of section 119 (as amended by the Finance Act, 2025 and the Finance Act, 2026) is attached hereunder:
