Step 1: A dumpy level needs two permanent adjustments so that it gives a correct horizontal line of sight.
Step 2: The first adjustment requires the axis of the bubble tube to be perpendicular to the vertical axis of the instrument, so that the bubble stays centred while the telescope is swung all around, matching Statement (I), which is correct.
Step 3: The second adjustment requires the line of collimation to be parallel to the axis of the bubble tube, not perpendicular to it, so that the line of sight is horizontal whenever the bubble is centred. Statement (II) says this relation is perpendicular, which is wrong.
So Statement (I) is correct but Statement (II) is incorrect, which is option 3.