The correct option is "1 only." The Government of India Act, 1935, did indeed provide for the establishment of an All India Federation, which was intended to include both British Indian provinces and princely states, thereby attempting to create a unified administrative framework. However, the control of Defence and Foreign Affairs was retained by the British government and not placed under the federal legislature, indicating a lack of true autonomy and a limitation in the federal structure outlined in the Act. This highlights the limited nature of self-governance offered by the 1935 Act, a key point in understanding India's constitutional evolution.