Concept:
The problem requires finding the first derivative of a given trigonometric relation with respect to \( x \). We can approach this problem either by using the standard formula for the derivative of the inverse trigonometric function \( \tan^{-1} x \) or by converting the inverse trigonometric expression into an explicit trigonometric form and employing implicit differentiation along with fundamental trigonometric identities.
Step 1: Expressing the equation explicitly in terms of \(x\).
The given equation is:
\[
\tan^{-1} x = y
\]
By taking the tangent of both sides, we can rewrite the inverse function as a direct trigonometric equation:
\[
x = \tan y
\]
Step 2: Differentiating implicitly with respect to \(x\).
Now, we differentiate both sides of the equation \( x = \tan y \) with respect to \( x \). Applying the chain rule on the right-hand side, we get:
\[
\frac{d}{dx}(x) = \frac{d}{dx}(\tan y)
\]
\[
1 = \sec^2 y \cdot \frac{dy}{dx}
\]
Step 3: Solving for \( \frac{dy}{dx} \) and matching the options.
To isolate \( \frac{dy}{dx} \), we divide both sides by \( \sec^2 y \):
\[
\frac{dy}{dx} = \frac{1}{\sec^2 y}
\]
Using the reciprocal trigonometric identity where \( \frac{1}{\sec \theta} = \cos \theta \), we can simplify the expression:
\[
\frac{dy}{dx} = \cos^2 y
\]
This precisely matches option (D).