When I am calling remote session bean residing in the same server instance, it works perfectly fine but getting following stack trace when remote session bean is deployed in separate server instance.
JBoss supports the first 2 cases via "ClientUserTransactionService" which is described in the AS user guide (see http://docs.jboss.org/jbossas/jboss4guide/r5/html/ch4.chapt.html):
The ClientUserTransactionService MBean publishes a UserTransaction implementation under the JNDI name UserTransaction.
While it does support propagating transaction contexts with remote calls, it does not support propagating transaction contexts to other virtual machines, so all transactional work must be done in the same virtual machine as the JBoss server.
If transaction contexts are to be propagated with RMI/JRMP calls, the transaction manager must also implement two simple interfaces for the import and export of transaction propagation contexts (TPCs). The interfaces are TransactionPropagationContextImporter, and TransactionPropagationContextFactory, both in the org.jboss.tm package.
These interfaces and their JNDI locations are:
The javax.transaction.TransactionManager interface is used by the application server to manage transactions on behalf of the transactional objects that use container managed transactions. It must be bound under the JNDI name java:/TransactionManager.
The TransactionPropagationContextFactory interface is called by JBoss whenever a transaction propagation context is needed for transporting a transaction with a remote method call. It must be bound under the JNDI name java:/TransactionPropagationContextImporter.
The TransactionPropagationContextImporter interface is called by JBoss whenever a transaction propagation context from an incoming remote method invocation has to be converted to a transaction that can be used within the receiving JBoss server VM.