Step 1: From the given, \( x \cos \theta = 1 \) and \( \tan \theta = y \).
Step 2: Express \( y \) as \( \tan \theta = \frac{\sin \theta}{\cos \theta} \).
Step 3: Since \( x \cos \theta = 1 \), rewrite \( x \) as \( x = \frac{1}{\cos \theta} \).
Step 4: Substitute \( x = \frac{1}{\cos \theta} \) and \( y = \frac{\sin \theta}{\cos \theta} \) into \( x^2 - y^2 \):
\[
x^2 - y^2 = \left(\frac{1}{\cos \theta}\right)^2 - \left(\frac{\sin \theta}{\cos \theta}\right)^2
\]
Step 5: Simplify the expression:
\[
x^2 - y^2 = \frac{1}{\cos^2 \theta} - \frac{\sin^2 \theta}{\cos^2 \theta} = \frac{1 - \sin^2 \theta}{\cos^2 \theta}
\]
Step 6: Use the identity \( 1 - \sin^2 \theta = \cos^2 \theta \):
\[
x^2 - y^2 = \frac{\cos^2 \theta}{\cos^2 \theta} = 1
\]
Thus, the correct answer is \( \boxed{1} \).