The assessee purchased land from the sale proceeds of property held by him, and constructed a nursing home and residential house thereon. On the residential house, he claimed exemption under section 54F of the Income-tax Act, 1961. The Assessing Officer restricted the deduction under section 54F of Act to the proportionate amount utilised for construction of the residential house. The CIT(A) thus upheld the disallowance made by the Assessing Officer. On appeal before the Tribunal, the assessee contended that, exemption was to be granted on the total land and portion of building used for residential purposes as against exemption under section 54F restricted by the AO to the proportionate area of land used for residential purposes. The Tribunal rejected the argument of the assessee and held that section 54F is very clear in respect of exemption being available to the assessee, in respect of either purchase of residential property or construction of residential property within the period of limitation prescribed therein. However, the AO while computing the capital gains, had allowed Rs. 33,41,839 as the cost of land appurtenant to the residential house for which there was no basis. The Commissioner (Appeals) mentioned that the land on which the residential house constructed was Rs. 586.96 sq. m out of the total land 2543.25 sq. m. the Lower authorities failed to compute the vacant land appurtenant to the residential house and hence, the AO was directed to consider all these aspects for the purpose of computing the exemption under section 54F and capital gains payable by the assessee. The assessee was eligible for the benefit of indexation in computing the capital gains. (AY. 2012-13)