I agree that the answer should be E. Here's my approach:
I rewrite the equation to isolate y by itself on one side.
y = (49-x^2) / 5
which means that in order for y to be an integer, 49 - x^2 must be a multiple of 5 (5, 10, 15, 20, and so forth).
statement 1) 1<x<4 INSUFFICIENT because unless x is the integer 2 or 3, 49-x^2 will NOT be divisible by 5 (the question does not specify that x has to be an integer).
statement 2) x^2 is an integer. INSUFFICIENT Now, x^2 can be any integer- try plugging in some simple integers:
49-2 = 47, NOT a multiple of 5
49-4 = 45 IS a multiple of 5
Statement 1 & 2 together:
At first glance, i thought that answer would be C because 49-2^2 and 49-3^2 are both multiples of 5. But don't forget that even if x^2 is an integer, x itself may be a fraction. INSUFFICIENT