In 1947, the 'two nation theory' was based on:

Principle of religious majorities

The correct answer is Option (2) → Principle of religious majorities

In 1947, the 'two nation theory' was based on principle of religious majorities.

On 14-15 August 1947, not one but two nation-states came into existence – India and Pakistan. This was a result of ‘partition’, the division of British India into India and Pakistan. The drawing of the border demarcating the territory of each country marked the culmination of political developments that you have read about in the history textbooks. According to the ‘two-nation theory’ advanced by the Muslim League, India consisted of not one but two ‘people’, Hindus and Muslims. That is why it demanded Pakistan, a separate country for the Muslims. The Congress opposed this theory and the demand for Pakistan. But several political developments in 1940s, the political competition between the Congress and the Muslim League and the British role led to the decision for the creation of Pakistan.