In the case of Peabody v. Eisner, Collector of Internal Revenue in 1917, the U.S Supreme Court ruled on a dispute regarding income tax law. The plaintiff was Francis S. Peabody who had received dividends from stock he owned in a corporation and argued that these dividends should not be taxed as income under the Tariff Act of 1913 because they were derived from property and thus constituted capital rather than income. However, the defendant, David J. Eisner (the collector for internal revenue), contended that such dividends did indeed constitute taxable income under this act. The court sided with Eisner's interpretation of the law by ruling that corporate profits distributed to shareholders as cash dividends are considered taxable "income" within meaning of Sixteenth Amendment to Constitution and Tariff Act October 3rd, 1913 regardless if it came out from earnings or paid-up surplus acquired before March 1st ,1913 . This decision helped clarify what constitutes 'income' for taxation purposes.

In the dissenting opinion for Peabody v. Eisner, the justice argued that dividends should not be considered income and therefore should not be subject to taxation under the Sixteenth Amendment. The justice contended that a dividend is merely a division of assets among shareholders and does not represent any increase in wealth or capital; it is simply a rearrangement of existing resources. Therefore, taxing dividends as income would constitute an inappropriate application of the federal government's power to tax incomes from whatever source derived. This interpretation contrasts with majority view which held that dividends are indeed taxable as they represent corporate profits distributed to shareholders.