What do you mean by: "do i need to keep the application folder in the same directory."? What directory?
I do not understand this statement: "i have kept my application as in Jboss." Could you provide some clarification?
Could you post the mssql-ds.xml file. Make sure you bracket the contents of the file with [ code ]...[/ code ] (without the spaces). You could also select the the contents and click the 'Code' button.
Please post the full stack trace for the error you are seeing.