Traceable funds rule: only amounts linked to the alleged offence may be retained, while unlinked balance can satisfy tax recovery claims.

Where frozen funds contained both amounts directly traceable to the alleged offence and amounts not shown to have such nexus, only the traceable portion could be retained as case property, while the balance could be applied towards lawful tax recovery. The Court held that a blanket rejection of applications under the Code of Criminal Procedure and the Income-tax Act in respect of the court-controlled account was not sustainable. It further held that only the amount corresponding to the identified transfers, together with accrued interest, was linked to the alleged crime; the excess received in India was not shown prima facie to be proceeds of offence and could be transferred to the Income-tax Department.

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Issues: (i) Whether the applications under Section 451/457 of the Code of Criminal Procedure, 1973 and Section 226(4) of the Income-tax Act, 1961 could be rejected in respect of the frozen amounts lying in the court-controlled account. (ii) Whether the entire amount transferred from the frozen foreign bank account could be treated as case property or proceeds of the alleged offence, so as to prevent utilisation of any part of it for income-tax recovery.

Issue (i): Whether the applications under Section 451/457 of the Code of Criminal Procedure, 1973 and Section 226(4) of the Income-tax Act, 1961 could be rejected in respect of the frozen amounts lying in the court-controlled account.

Analysis: The dispute concerned two competing claims over the money held in the Special Judge-controlled account: the petitioners sought appropriate release or adjustment of the amount, while the Income-tax Department sought recovery of outstanding tax dues. The Court noted that the earlier freezing and transfer of funds had created a pool of money under judicial control, and that the subsequent assessment proceedings and tax demand were pending against the petitioners. It also noted that the application of the tax department had to be considered alongside the criminal court's power to deal with property under the Code of Criminal Procedure, 1973.

Conclusion: The blanket rejection of both applications could not be sustained.

Issue (ii): Whether the entire amount transferred from the frozen foreign bank account could be treated as case property or proceeds of the alleged offence, so as to prevent utilisation of any part of it for income-tax recovery.

Analysis: Relying on the principle that bank accounts may constitute property capable of being seized where the funds have a direct link with the alleged offence, the Court distinguished between the amount traceable to the impugned transaction and the larger amount ultimately received in India. It held that only the amount corresponding to the identified transfers from TPE to RAPL, together with accrued interest, could be treated as linked to the alleged crime. The excess amount received in India over and above that traceable amount was not shown to be prima facie case property or proceeds liable to confiscation, and therefore could be made available for satisfaction of the tax department's claim.

Conclusion: Only the amount traceable to the impugned transaction was to be retained as linked property, and the balance was to be transferred to the Income-tax Department.

Final Conclusion: The petition succeeded in part: the Court protected the amount directly connected with the alleged offence, but directed release of the remaining funds for income-tax recovery.

Ratio Decidendi: Where frozen funds include both amounts directly linked to the alleged offence and amounts not shown to have such nexus, only the traceable amount may be retained as case property, while the balance may be applied towards lawful claims such as tax recovery.

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