Assessee received 3 acres of land under a settlement deed out of total land of 11.53 acres belonging to various family members from his grandmother, ‘ However entire land was earlier mortgaged by various joint owners of property including  with Bank and upon default in payment matter went to DRT and subsequently settled land in an OTS before DRT and land was sold. Assessee claimed deduction of proportionate part of OTS amount paid to bank as cost of acquisition under section 55 of the Act.  Assessing Officer as well as Tribunal rejected claim of deduction. On appeal   allowing the appeal the Court held that encumbrance by way of mortgage whether by way of direct mortgage or as collateral security, had to be cleared off by legal heir or person in whose favour property had been settled like assessee and thus, amount paid by assessee to clear that encumbrance had to be treated as part of cost of acquisition or cost of improvement under section 48/49 of the Act. Order of Tribunal is reversed. (AY. 2010-11)