The correct answer is option 3: The Finance Commission. The Finance Commission is responsible for recommending the financial distribution between the Union government and the states. This commission is appointed by the President of India every five years and consists of a chairman and four other members.

The Finance Commission`s main role is to study the financial resources and expenditures of the Union and state governments and make recommendations on the sharing of funds between them. They consider various factors such as population, income disparities, fiscal capacity, and special needs of the states. Based on their assessment, they propose the distribution of funds in the form of grants and other financial assistance to the states.

The Inter-State Council (option 1) is a constitutional body that discusses and resolves issues between states and between the Union and states, but it does not play a direct role in financial distribution.

The Planning Commission (option 2) was a now-abolished body responsible for formulating five-year plans and coordinating development efforts, but it did not have the authority to recommend financial distribution.

The National Development Council (option 4) is a forum where the Prime Minister, the Union Cabinet, and the Chief Ministers of all states discuss and coordinate development plans. However, it does not have the power to recommend financial distribution either