I have resolved this issue. The issue was that the connection used by the EJB was not XA. Earlier I assumed that our existing application is using the XA connection. So, I had to place the interceptor annotation on the EJB to use the XA connection as follows:
@Interceptors({JtaXaDataSourceRegistryInterceptor.class})
When using the remote EJB and Transactions it requires to have the XA connection in both client and the server where the EJB resides to participate in two phase commit in database activities.