Ive played guitar several years (19 to be exact) on and off, as a hobby. Anytime I come across a nice song, google for the chords, start practicing with basic chords and strumming I have. If it feels too good, I'll record it.
However there is always a frustration that I cant progress further with just my basic playing style - it sounds very one dimensional, I jump straight into strumming, maybe try a little plucking during the intro, I'll have no idea what to do in between verse. I know there are many resources available, but that is also a problem, there is just too many that its hard to stick to one. One resource just seems better then the other.

Hence, I've decided to take a guitar class instead. Took my first trial lesson in a music center. I told the tutor, a 50+yo classically trained musician (great guy) - I want to play my fav songs where I would be able to decode it myself into tabs and chords, play the song with more variations and techniques. What do I have to do?

He said I need to learn music notes by completting 3 beginner musics books which consist of music notes. Then I can be attend an exam (and pass) before progressing further to more advanced grades. Im really confused. I asked him, why do I need music notes, isnt tabs, chords and techniques are enough for me? I learned guitar music theory, I kinda know how the algo works, how chords are formed, major minor, scales and stuff - I dont remember going through musical notes when learning them. But he was adamant that I have to learn music notes, tabs are for kids he said.

And he even told me to hold the guitar in 45deg as how classical guitarist would do when he was giving me the lesson on how to read music notes and play that on the guitar. Yes, I have a classical guitar (i have acoustic too), I want to play chord+melody+rhythm sytle but I don't know if going through this guitar classical route is the most optimum for me to achieve how I want to play.
I was expecting the lesson to be structured around getting to know more chords, fingerstyles and aural lessons. I want to enjoy learning, not hate it.

I would like to get some feedback, is this the best way to progress? to learn music notes? I don't mind putting the work if it does help me progress but I just can't see how.

learning notation is not hard actually. It may seem hard at first because you don't recognise anything. But after learning a few basic songs using notation, you will ge the hand of it.
i recommend you make use of your teacher, he seems very experienced.
later it will be very easy to learn new songs
in order to make your playing less "one dimensional" you have to try new songs, new methods, outside your comforst zone. The best way for this is to learn new songs all the time with varying styles.
I have also been playing guitar for many years and i went for classes up to grade 8. sometimes you have to learn songs you don't really like, but it is advantageous. your teacher should know what songs will help you out

thanks for the feedback,
yea i'll be giving this a go, signed up for monthly - its been long time pending, I've been wanting to do this.
I really enjoy playing guitar despite all the frustration not being able to progress from my simple chord plays.
Never had the chance to attend classes when I was a kid due to financial reasons nor do I had a circle who plays musical instruments.

How long does it take to pass each grade? if you mind sharing.

it's good that you are able to do what you have wanted

to pass each grade, it depends on you. i think the exam is only held once or twice per year. i might be wrong
and depends on what exam. I did the Cambridge one. I did not do all the grades, i only did the Grade 8 exam
I was learning for fun only, and my teacher just suggested to do the grade 8 exam so at least i have something in paper, since i had been learning for many years at that time

i suggest you just have fun learning and don't worry about exams first. later if you feel you're good, you can try the grade 5 exam first. your teacher can advise you

You can try 1-2 more lessons, and if you don't enjoy it, you can always try another teacher. The teacher you mentioned seems to be more classically inclined, which might not be want you want.