During the colonial period in India, the purpose of setting up hill stations was primarily to establish sanatoria. Hill stations were created as retreats in the mountains, away from the heat and humidity of the plains, to provide a respite for the British officials and their families. These hill stations served as healthcare centers where Europeans could go for rest, relaxation, and to recover from illness in a more pleasant and cooler environment.

Option 1, to serve as winter capitals for the British, is incorrect because the hill stations were not intended to function as administrative centers or capitals. They were rather meant to be recreational and health retreats.

Option 2, to serve the needs of the British army, is also incorrect. While hill stations did provide a cool refuge for the army personnel during the summer months, their primary purpose was not military-related.

Option 3, to source timber from forests, is not the main purpose of setting up hill stations. While some timber may have been sourced from the nearby forests, it was not the primary reason for establishing these hill stations.

In conclusion, the correct answer is option 4, to set up sanatoria, as these hill stations were primarily intended to serve as healthcare retreats for the British officials.