The Preference Shares (Regulation of Dividends) Act, 1960 was enacted to address disparities in dividend payments on preference shares issued by Indian companies, particularly in the context of income-tax liabilities. Before this Act, companies often issued preference shares with terms that either:
Fully exempted dividends from tax deductions, burdening the company with the tax liability.
Passed the tax burden to shareholders by deducting tax at source.
This led to inconsistencies and financial strain on companies, especially those with tax-exempt income (e.g., agricultural income). The Act aimed to standardize dividend payments by introducing mandatory increases in stipulated dividends to offset tax liabilities, ensuring fairness to both companies and shareholders.

The Preference Shares (Regulation of Dividends) Act, 1960, was a landmark in Indian corporate law, balancing shareholder rights with corporate tax responsibilities. By mandating standardized dividend adjustments, it brought transparency to a previously fragmented system. Though later amendments narrowed its applicability, its core principles influenced subsequent financial regulations, underscoring the interplay between tax policy and corporate governance. The Act remains a reference point for debates on dividend fairness and tax equity in India.