The Banaras Sanskrit college was set up by

Correct option is A

Jonathan Duncan

The Banaras Sanskrit College (which later became Sampurnanand Sanskrit University) was established in 1791.

Jonathan Duncan was the British Resident of the East India Company at Varanasi at that time. He proposed the establishment of a Sanskrit college to promote the study of Hindu law and philosophy and demonstrate British support for Indian education. His initiative was sanctioned by the then Governor-General, Lord Cornwallis.
Let's look at why the other options are incorrect:

Pandit Madan Mohan Malaviya: He was instrumental in establishing the Banaras Hindu University (BHU) in 1916, which is a much later institution and a different entity from the original Banaras Sanskrit College. While BHU has a strong Sanskrit department, it's not the institution founded by Malaviya.
Bishop Middleton: He was involved in the establishment of Bishop's College, Calcutta, in the early 19th century, which focused on Christian education, not the Banaras Sanskrit College.
Surendranath Banerjee: A prominent Indian nationalist leader and founder of the Indian National Association, he was not involved in the establishment of the Banaras Sanskrit College. His contributions were primarily in the political and administrative spheres of the Indian nationalist movement.