KISHINCHAND CHELLARAM vs COMMISSIONER OF INCOME-TAX,CENTRAL BOMBAY

The Supreme Court held that under Section 16(2) of the Indian Income Tax Act, 1922, dividends declared by a company cannot be retrospectively altered to loans by a subsequent resolution. The Court affirmed that payments made as dividends retain their character regardless of whether they are paid out of capital, and liability for income tax arises as soon as dividends are paid, credited, or declared. The appeal was dismissed, upholding the Tribunal's decision that the dividends were taxable income.