Recall the job each axis of a dumpy level has to do, rather than the exact wording of the statements.
The vertical axis is the spindle the whole instrument spins on. If the bubble tube axis were not truly perpendicular to this spindle, the bubble would drift off centre every time the telescope is turned to a new direction, so this perpendicularity, described in Statement (I), is indeed a required and correct adjustment.
Now think about what keeps the sight horizontal. A horizontal line of sight only happens if the sighting axis, the line of collimation, runs exactly parallel to the bubble tube axis, because that is what lets a centred bubble guarantee a level sight. Being perpendicular, as Statement (II) claims, would instead point the telescope almost straight up or down whenever the bubble is centred, which defeats the purpose of a level.
\[ oxed{ ext{Statement (I) correct, Statement (II) incorrect}} \]