You can get it out by pulling using the tool, OR....here is where it gets a bit sticky...you can yank it out "slide hammer style".
If I want the upper driveshaft, and I do not care about the clip, I will clamp a large vise grip on the upper driveshaft, about 3-4 inches from the top, where the driveshaft tapers down just below the splines. Clamp it in the reduced diameter area to avoid any damage to the machined upper 3-4 inches of the shaft.
I then get a BIG HAMMER, and whack the vise grip hard. It will bend the retaining clip, and pull the driveshaft out. It might take a few whacks, depending on how hard you hit it.
You can continue to use both the gearcase and the driveshaft, but the driveshaft will not be held in by that clip anymore.
You cannot get to the clip without disassembling the gearcase, in particular, removing the DS pinion gear.