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The correct answer is option 1: customary occupancy rights. The passage mentions that before the permanent settlement, the peasants had customary occupancy rights. This means that they had the right to occupy and cultivate the land they were working on, and their status was more secure. However, the permanent settlement transferred land ownership rights to the zamindars, who were the landlords. As a result, the peasants lost their customary occupancy rights and were reduced to the status of tenants. This meant that they had to pay rent to the zamindars for the land they were cultivating, without the security of customary occupancy rights. The passage also mentions that the provision of a written agreement between the peasant and the zamindar, called a patta, which would record the amount of rent to be paid, was rarely followed by the zamindars. This further highlights the loss of rights and security for the peasants under the permanent settlement.