JUDGMENT K. Shivashankar Bhat, J.—The following question referred to us under section 256(1) of the Income Tax Act, 1961, requires our consideration : "Whether the initial expenditure on the construction of building and purchase of machinery and the subsequent transfer of these assets to the Laxman Isola Limited without any apparent profit motive and without the transfer of corresponding liability incurred for the starting of the business case be held to be in the course of the assessee's business of promoting companies ?" 2. The assessee is a company carrying on the business of manufacture and sale of electrical insulating press boards and multi-ply press paper. Articles 16, 19 and 21 of the articles of association and the memorandum of objects of the company also authorise it to carry on the business of promoting other companies. In pursuance of that object, the assessee obtained on August 14, 1973, a licence from the Government of India for the establishment of a new industrial undertaking at Ramanagaram, Bangalore, for the manufacture of mica paper with the intention of transferring it to a newly incorporated company called "the Laxman Isola Ltd." The letter of intent give by the Government of India on August 14, 1973, was extended up to December 31, 1976, as the assessee was not able to complete the setting up of the undertaking. Thereafter, on June 28, 1976, the Laxman Isola Ltd. was incorporated. The assessee had to get the permission of the Chief Controller of Imports and Exports to amend the import licence in the name of the new company and it was only on November 23, 1977, that the Government approved the proposal of the assessee to invest in 37,500 equity shares of Rs. 100 each in the new company, Laxman Isola Ltd., after the Reverse Bank had give permission by letter dated September 9, 1977, under the Foreign Exchange Regulation Act. This approval was subject to the condition that the assessee shall not resort to borrowing for the proposed investment which shall be made from its now internal resources and the subscriptions had to be made before May 30, 1978. By a resolution of the board of Laxman Isola Ltd. passed on December 21, 1977, 23,430, shares were allotted to the assesses-company. This entire venture was made under a technical collaboration agreement between the assessee and Messrs. By a resolution of the board of Laxman Isola Ltd. passed on December 21, 1977, 23,430, shares were allotted to the assesses-company. This entire venture was made under a technical collaboration agreement between the assessee and Messrs. Swiss Insulating Works Ltd., a foreign collaboration which was approved by the Government of India. During the process of setting up of the industrial undertaking, the assessee had incurred expenditure totaling Rs. 24,83,743 during the years 1974 to 1977, thus : (In rupees) ---------------------------------------------------------------------- On buildings For technical Others including Total know-how for machinery ---------------------------------------------------------------------- 1974 1,17,627 80,000 - 1,97,627 1975 4,25,262 - - 4,25,262 1976 3,43,420 - 21,000 3,13,443 6,77,863 ---------------------------------------------------------------------- 8,86,309 80,000 3,34,443 13,00,752 1977 3,43,868 - 8,39,123 11,82,991 ---------------------------------------------------------------------- 12,30,177 80,000 11,73,566 24,83,743 ---------------------------------------------------------------------- 3. As and when the expenditure was incurred by the assessee, it was recorded in its now books under a separate ledger called "Mica Project Account". After the incorporation of the new company, this account had the heading "Laxman Isola Ltd." in parenthesis. After the undertaking had been set up and after the new company had been incorporated, the assessee had to get fresh approval from the Reserve Bank of India which was given on December 28, 1977, before it could transfer the factory building and other assets to the new company. The shares of the new company were allotted to the assessee in consideration of the transfer of these assets belonging to the assessee in consideration of the transfer of these assets belonging to the assessee till then, though these assets were created by the assessee for the purposes of the new industrial undertaking. It is clear from these facts that in case the new company could not be incorporated for any reason, these assets would have continued to be with the assessee and would have been continued to be used by the assessee for its business purposes. 4. There is no dispute that, during the years 1975-76 and 1976-77, the interest on the borrowings (borrowed for the purposes of these assets) were allowed as business expenditure of the assessee by the Revenue. But a similar claim for deduction during the years in question. i.e., 1977-78 and 1978-79, was contested by the Revenue on the ground that the borrowings were to create assets which were diverted as the capital of the new company. But a similar claim for deduction during the years in question. i.e., 1977-78 and 1978-79, was contested by the Revenue on the ground that the borrowings were to create assets which were diverted as the capital of the new company. The Appellate Tribunal, however, did not agree with the stand take by the Revenue and allowed the appeals filed by the assessee before it. Hence, these references. 5. The Appellate Tribunal held that, (1) the assessee is a company carrying on the business of manufactures and sale of electrical insulating press boards and multiply press paper; (2) the new undertaking started by the assessee (which is now vested in the company called Laxman Isola Ltd.) was to manufacture mica paper; (3) the articles of association and the memorandum of association of the assessee authorise it to promote other companies; (4) the letter of intent to manufacture mica paper was give to the assessee by the Government of India on August 14, 1973, which was extended up to December 31, 1976; (5) the new company was incorporated on June 28, 1976; however, the import licence to import the requisite materials, which stood earlier in the name of the assessee, was amendment on November 23, 1977, substituting the name of the new company; (6) there were other requirements under relevant statutes which were completed by the permission granted by the Reserve Bank of India, etc., and, only in December 1977, the new company obtained the assets in question for the assessee; (7) as and when the expenditure was incurred by the assessee, it was recorded in its now books under a separated ledger called "Mica Project Account", which was transferred to the heading "Laxman Isola Ltd." in parenthesis after the new company was incorporated; (8) even before the new company was incorporated, the assessee had incurred expenditure for setting up a industrial undertaking which was to be eventually transferred to the new company. 6. The Appellate Tribunal, however, found that the assessee was not in a fiduciary position in relation to the new company. It had on obligation top transfer the assets brought into existence by it to the new company. 6. The Appellate Tribunal, however, found that the assessee was not in a fiduciary position in relation to the new company. It had on obligation top transfer the assets brought into existence by it to the new company. The finding of the Appellate Tribunal is : "In the circumstances, it is clear that, at the time when the assessee incurred the expenditure for setting up the undertaking called Mica Project, it constituted part of its own business though it may have had a idea of transferring it eventually to the new company being promoted by it. In the circumstance use of the borrowed funds for meeting the expenditure for setting up that undertaking could only be regarded as laying out of the borrowed capital for the purpose of the assessee's own business. It is own well-settled that even where the borrowed capital is used for meeting the capital expenditure, the interest paid thereof should be allowed as a deduction if the borrower is after the setting up of the business." 7. The Appellate Tribunal was justified in concluding, from the facts and circumstances, that there was no trusteeship in respect of the setting up of the new company by the assessee, and that the expenditure incurred on the setting up of the undertaking (or the unit) to manufacture mica paper was a expenditure incurred by the assessee as part of its existing busies operation. If, for any reason, the Government of India or any statutory authority refused to permit the new company to have the import licence or have the share allotted to the petitioner in lieu of the transfer of assets, these assets would have continued with the assessee as the business assets of the assessee. Therefore, the answer to the question referred to us has to be necessarily in the affirmative. 8. In Maharaja Shri Umaid Mills Ltd. Vs. Commissioner of Income Tax, (1989) 175 ITR 72 Raj the Rajasthan High Court had to consider whether the assesses-company which carried on business in textile was entitled to deduction of the amounts spent by it for obtaining a survey and feasibility report regarding a polythene plant, with a view to set up a polythene plant, since polythene was necessary to manufacture packing material required for the products of the assessee. The deduction was allowable in case a legal inference can be draw that the different ventures constituted separate businesses or, viewed together, can be said to constitute the same business. The High Court held at page 74 : "The test to be applied for deciding whether this is an allowable expenditure or not was indicated by the Supreme Court in Setabgunj Sugar Mills Ltd. Vs. The Commissioner of Income Tax, Central, Calcutta, AIR 1961 SC 360 , as under (at page 274) : 'The question whether, on the application of the settled tests, different ventures carried on by an individual or a company form the same business is a mixed question of law and fact. Certain principles are applied to determine whether, the facts found, a legal inference can be draw that the different venture constitute separate businesses or, viewed together, can be said to constitutes the same busies. These principles were stated by Rowlatt J. in Scales Vs. George Thompson and Co Ltd, 1927 (13) TC 83, 89. The learned judge observed : ".... the real question is, was there any interconnection, any interlacing any interdependence, any unity at all embracing those two businesses ?" 9. The learned judge also observed that what one has to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principles have to be applied to the facts before a legal inference can be drawn that a particular business is composed of separate businesses, and is not the same one.'" 10. If perchance, the assets created by the assessee could not be transferred to there new company, those assets would have continued, in the instant case, with the assessee, and in all probability, the assessee would have started manufacturing the mica paper in collaboration with the foreign company, since the import licence stood in the name of the assessee. It is also clear that mica paper is a product consumable by the assessee or could be marked along with other articles produced by the assessee and mica paper belonged to the broad group of those other articles manufactured by the assessee. The test of interconnection between the two businesses is satisfied here. 11. The decision of the Madras High Court in Commissioner of Income Tax Vs. The test of interconnection between the two businesses is satisfied here. 11. The decision of the Madras High Court in Commissioner of Income Tax Vs. P. Ganu Rao and Sons, (1990) 185 ITR 324 Mad, is based entirely on the facts of the said case. The advance made by the leather manufacturing company to a Hindu undivided family to construct a house could, in no way, be held as related to the leather manufacturing activity. 12. The contention of learned counsel for the Revenue that the assets for which expenditure was incurred were of enduring nature resulting in a capital expenditure need not be gone into here because we are concerned with the interest paid on the borrowings by a company which was already manufacturing various articles, and the proposed expenditure resulted in the expansion of the said manufacturing activity. Further, the test of enduring benefit is not an exclusive and sole test to determine whether an expenditure is in the nature of a capital or a revenue expenditure (vide Empire Jute Co. Ltd. Vs. Commissioner of Income Tax, AIR 1980 SC 1946 ). 13. Mr. Raghavendra Rao relied heavily on the decision of the Supreme Court in A. Vs. THOMAS AND CO. LTD. v. COMMISSIONER OF INCOME TAX., (1963) 48 ITR 67 SC. The facts of the said case were entirely different. It was a case of advance made to purchase certain shares. The new company was sought to be promoted by another agency. The advance was treated as a business loss by the assessee as it thought that the advances could not be recorded. The advance made was held as an expenditure incurred to acquire capital and hence the loss was in the nature of a capital expenditure. 14. I these circumstances, the question referred to us to be answered in the affirmative and against the Revenue. 15. References are answered accordingly.