Step 1: Understanding the Concept:
Assertion-Reason questions require a two-step verification: first, check if each statement is factually true, and second, check if the "Reason" explains the "Assertion."
This question deals with Article 352 of the Indian Constitution and its impact on the federal structure.
Step 2: Detailed Explanation:
1. Analyzing Assertion (A): On June 25, 1975, President Fakhruddin Ali Ahmed declared an internal emergency.
This led to the suspension of fundamental rights, press censorship, and the arrest of opposition leaders.
The central government, specifically the Prime Minister's Office, took absolute control of all administrative functions.
Thus, the assertion that there was "extreme centralization" is factually and historically True.
2. Analyzing Reason (R): The statement claims federal distribution remains "fully operational" during an Emergency.
Constitutionally, this is False. Article 353 clearly states that during an Emergency, the executive power of the Union extends to giving directions to any state.
Parliament also gains the power to make laws on subjects listed in the "State List."
Essentially, the federal structure turns into a unitary structure. Thus, (R) is False.
Step 3: Final Answer:
Since (A) is true but (R) is false, the only possible correct option is (C).