The Simon Commission was constituted to review the workings of the government in India under the British rule and it made several recommendations. The correct statement among the options is that it recommended the replacement of diarchy with responsible government in the provinces (option 1).

Option 1 is correct because in the diarchy system, executive councils were divided into `transferred` and `reserved`. Transferred departments were to be administered by the governor with the aid of ministers responsible to the legislative council, while reserved departments were to be administered by the governor and his executive council. The Simon Commission recommended the end of this and the introduction of responsible government in the provinces.

Option 2 is incorrect because the commission did not propose the setting up of an interprovincial council under the Home Department.

Option 3 is also incorrect, as the commission did not suggest the abolition of the bicameral legislature at the center.

Option 4 is incorrect as well. The Simon Commission did not recommend the creation of the Indian Police Service with provisions for increased pay and allowances for British recruits as compared to Indian recruits.