MS SQL Azure (RTM) - 12.0.2000.8 - throwing incompatible error on accessing Linked Server queries

Question

@@Version: Microsoft SQL Azure (RTM) - 12.0.2000.8 Mar 1 2023 03:05:36 Copyright (C) 2022 Microsoft Corporation We have a linked server that is referring to the underlying server on the cloud, and when we try to run a query from another database on the Managed Instance, that calls a proc on the linked server that connects with a vendor database on cloud. we are getting this error: Import of Microsoft Distributed Transaction Coordinator (MS DTC) transaction failed: 0x80070057(The parameter is incorrect.). Database A calls proc on Database B Database B calls the Database C on the cloud using Linked Server, This aforementioned error happens. but If I call the linked server proc from Database C, it works just fine. What am I missing here in the Managed Instance setting?