The Act which restored to the provinces of Bombay and Madras the power of making and amending laws, which had been taken away earlier, was the:

The Indian Councils Act, 1861 restored the legislative powers of the Bombay and Madras Presidencies, which had been taken away by the Charter Act of 1833. It started the process of decentralisation of legislative powers.

Background:

• The Charter Act of 1833 had centralised legislative powers in the Governor-General of India in Council.
• After the Revolt of 1857 and the Government of India Act, 1858, the British wanted to involve Indians in law-making and to decentralise administration.

Main provisions of the Indian Councils Act, 1861:

• It made a beginning of associating Indians with law-making: the Viceroy was to nominate some Indians as non-official members of his expanded council.
• In 1862, Lord Canning nominated three Indians: the Raja of Benaras, the Maharaja of Patiala and Sir Dinkar Rao.
• It restored the legislative powers of the Bombay and Madras Presidencies.
• It provided for new legislative councils for Bengal, the North-Western Provinces and Punjab, which were set up in 1862, 1886 and 1897 respectively.
• It gave recognition to the portfolio system introduced by Lord Canning in 1859, under which a member of the Viceroy's council was put in charge of one or more departments.
• It empowered the Viceroy to issue ordinances without the concurrence of the legislative council during an emergency; an ordinance could last for six months.
• It empowered the Viceroy to make rules and orders for the convenient transaction of business in the council.

Limitations:

• The legislative councils were only advisory bodies.
• The non-official Indian members were nominated, not elected, and they were mostly princes and landlords.
• The councils could not discuss the budget or question the executive.

Later Acts:

• The Indian Councils Act, 1892 introduced indirect election (in a limited form) and allowed discussion of the budget.
• The Indian Councils Act, 1909 (Morley-Minto Reforms) introduced separate electorates for Muslims.

Why not the other options?

• ✗The Charter Act, 1833 took away the provincial legislative powers.
• ✗The Indian Councils Act, 1892 and the Government of India Act, 1858 made other changes.