ASMX webservice using Basic authentication response 401 unauthorizied status

I have a ASMX file upload webservice with Basic authentication which works fine when called from my local system. But when its called from another server I get 401 unauthorized error.

Have looked at IIS log files and I see two responses.

Status   SubStatus   win32-status
- 401       2         1326
- 401       1         1326

First request I guess is to check if server allows Basic authentication.

Turned on IIS Failed Request Log couldn't figure out. Username and password is same. Below are details

[ModuleName     IIS Web Core 
Notification   2 
HttpStatus     401 
HttpReason     Unauthorized 
HttpSubStatus  2 
ErrorCode      2147942405 
ConfigExceptionInfo
Notification   AUTHENTICATE_REQUEST
ErrorCode      Access is denied. (0x80070005)]


[ErrorCode      2147943726 
ErrorCode      Logon failure: unknown user name or bad password. (0x8007052e)]


[ModuleName       BasicAuthenticationModule 
 Notification     2 
 HttpStatus       401 
 HttpReason       Unauthorized 
 HttpSubStatus    1 
 ErrorCode        2147943726 
 ConfigExceptionInfo
 Notification     AUTHENTICATE_REQUEST
 ErrorCode        Logon failure: unknown user name or bad password. (0x8007052e)]