Should I-T be levied on dividends distributed to shareholders?

According to the budget the dividends given by firms to the shareholders would come under the ambit of Income Tax. I strongly think that the policy is flawed. I cite the following reasons:
1. This may lead to double taxation. The recipient of the dividend is already paying tax on the income he has earned due to the dividends. Now taxing the firm again on this dividend would lead to double taxation.
2. The firms which are already paying very high taxes will be hit by this policy. The dividend taxation should be categorised on the basis of the amount the firm is already paid as tax. The firm which does not pay much tax should be entitled to dividend taxation.
3. It would not encourage further investment. The firms will definitely try to retain profit. This surplus money would have otherwise been distributed to the share holders who would in turn have invested it some instruments. But now the extra money might not be utilized efficiently by the firms. The money might also be left unused.
I am not really sure about its merits but according to me the government has levied such a tax extract more revenue. The profits of the firms might not have been taxed at all saying that they are meant for the dividends. The firms would not have to pay any taxes but the shareholder would have too. So the profits are earned by the firms but the taxes are paid by the shareholders.