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The pinhole camera works on the principle of
$\left( A \right)$ Reflection of light.
$\left( B \right)$Refraction of light.
$\left( C \right)$Rectilinear propagation of light.
$\left( D \right)$ Both (A) and (B)

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Answer
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Hint: Use the property in this question that Light does not deviate when traveling through a homogeneous medium that has the same refractive index throughout which the pinhole camera is based, so use the concept to solve the problem.

Complete step by step answer:
 Reflection of light
Reflection is the change in direction of a wave front at an interface between two separate media to return the wave front to the medium it originated from.
Refraction of light
Refraction is a wave's bending as it reaches a medium where its speed is different, i.e. when the medium it passes through varies in density, light only deviates from a straight line. This is known as refraction.
Rectilinear propagation of light
Rectilinear propagation describes Electromagnetic Waves (light)'s propensity to travel in a straight line.
Principle of pin-hole camera
When the shutter is opened, light will shine through to imprint a picture on photographic paper or film placed at the camera's back. Pinhole cameras rely on light traveling in straight lines – a principle called the rectilinear light theory. That makes the camera's picture appear upside-down.
And from the description above we can infer that the pinhole camera works on the theory of rectilinear light propagation.
So this is the required answer.
Hence option (C) is the correct answer.

Note – Whenever we face these kinds of questions, always remember all the basic definitions of the given properties, all of which are stated above, then check which properties are the key principle of the pinhole camera as above.