I agree with Mr. Wadhwa,
It will be deemed dividend , if
1. it is not distributed as a normal dividend after paying Dividend Distribution Tax under Sec.115-O or
2. The company is not having the sufficient accumulated profits to give such loan.
Hence, it seems in your case deemed dividend is applicable.
Now, the consequences,
1. the company is liable to deduct TDS @ 10% under Section 194 on such payments;, else penalty of the same amount would be levied but no addition to the income of the co. will be made as it is not an expense claimed by the co.;
2. The payment made would be taxable in the hands of the recipients under Section 56(2)(i)...
3. Repayment of such loan does not hold its good in such cases.
Hence, it is advisable to avoid such transactions, as you could show it to be a normal dividend, much better for both the parties....