1937-40 period was critical in the growth of two-nation theory.Under the Govt. of India Act 1935, elections to the provincial legislative assemblies were held in 1937.Congress gained in the seven out of eleven provinces and they took a strictly legalistic standon the formtion of provincial ministries and refused to form a coalition govt. with the Muslim league, even in the United Provinces, which substantial Muslim minority, provinces such as Punjab,and the NWFP. The conduct of Congress Govt. in Muslim minority provinces permanently alienated Muslim Leasgue.
By the late 1930s, Jinnah was convinced of the need for a separate Muslim state. At its annual session in Lahore on March 23, 1940, the Muslim League resolved that the areas of Muslim majority in north -western and eastern Indiashould be grouped together to constitute independence plan without this provision was unacceptable to Muslims.Federation was rejected. The Lahore resolution (forward by Sher-e-Bengal Mr. A.K.Fazlul Haq) was often referred to as the "Pakistan Resolution." However the word Pakistan did not appear in it.
Map of the British India 1909,showing the prevailing majority religions of the population for different districts.
The ideology of Pakistan took shape through an evolutionary process, based on historical experience . Muslim Modernist and reformer Sir Syed Ahmed Khan (1817-1898) began the period of south Asian Muslim self-awakening and identity, Poet Philosopher Allama Muhammad Iqbal (1877-1938), provided the philosophical explanation, and barrister Muhammad Ali Jinnah (1871-1848)translated it into the political reality of a nation state.
The evidence cited for the differences dated eleventh century, when the scholar Ai=Biruni (973-1048) observed that Hindus and Muslims differed in all matters and habits.
Al-Biruni (973-1048)
Allama Iqbal's explained the two-nation theory. The decision was taken in Lahore Congress in 1940.