For which of the following reasons was the Nagpur session of 1920 significant?

The linguistic principle was recognized as the basis of the reorganization of the Indian National Congress party itself. 

The correct answer is Option 3 - The linguistic principle was recognized as the basis of the reorganization of the Indian National Congress party itself.

During colonial rule, the state boundaries were drawn either on administrative convenience or simply coincided with the territories annexed by the British government or the territories ruled by the princely powers.
Our national movement had rejected these divisions as artificial and had promised the linguistic principle as the basis of the formation of states. In fact, after the Nagpur session of Congress in 1920, the principle was recognized as the basis of the reorganization of the Indian National Congress party itself. Many Provincial Congress Committees were created by linguistic zones, which did not follow the administrative divisions of British India.