Dividend tax character cannot be altered retrospectively by later resolution after payment or credit to shareholders.

Dividend credited and received by shareholders retained its character as dividend for income-tax purposes once declared, paid, credited, or distributed, and liability attached under the Income-tax Act at that stage. A later company resolution could not retrospectively reclassify the receipt as a loan or undo the tax consequence, even if the original declaration was irregular or contrary to company law. The receipt therefore remained taxable as dividend income.

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Issues: Whether dividend credited and received by shareholders could lose its character as dividend by a subsequent resolution of the company treating it as a loan, so as to escape tax under the Income-tax Act.

Analysis: Section 16(2) of the Indian Income-tax Act fastened liability when dividend was paid, credited, distributed, or deemed to have been so paid, credited, or distributed. The amounts had been declared and credited as dividend and were received and returned as such. Even if the declaration was irregular or the dividend was paid out of capital in breach of the Companies Act, that did not alter the character of the receipt for income-tax purposes. A later resolution could not retrospectively change the nature of the payment or undo the tax liability that had already attached.

Conclusion: The subsequent resolution did not affect the taxability of the amounts already credited and received as dividend, and the receipt remained taxable as dividend income.

Ratio Decidendi: Once dividend is declared and paid, credited, or distributed to shareholders, its tax character is fixed under the Income-tax Act and cannot be altered retrospectively by a later corporate resolution, even if the original distribution was irregular or unlawful under company law.

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