Sorry, I misunderstood your question. Yes, you cannot rename a file to a name used by an existing file. WinSCP cannot automatically delete the existing name for you.

I have full access on the file and folder.

You probably do not have write permissions to the files. Do you?

I can successfully move (drag and drop) a file from existing location to parent/child directory under remote window.

However, if same file is already existing in the parent/child directory I am getting Error message.

Is there any way to get a pop-up confirmation message asking whether I want to override this file or not; and eventually move it if press "OK" or is it an expected behaviour of WinSCP?

I am using WinSCP version 5.7.4 (Build 5553) and File Transfer Protocol is SFTP-3