As expected, the log files defined in that file should be generated automatically after accessing the custom application. But to my surprise the logging.xml file got overwritten (to the original one) right after the managed server restarted.
Finally found the solution in support.oracle.com under support id 1335539.1. This issue shows up when admin server is in box1 and managed server is in box2.
The solution is simple. Just modify the logging.xml file of box1 (admin server) and restart other managed servers. The change will propagate to other Boxs where those managed servers are running.