Hello Aditya,
Do you have a blank line between the two lines? If so, see below.
No, I don't have a blank line. (well, I can change my test file, but that is not the solution I am looking for.)
To process the tags I have defined some macro's, like this one:

\def\TAGc#1
{\dosomething{#1} % the \dosomething has to do with fonts etc.
\dosomethingelse}

However, when I typeset the document this macro only works with the
first word of the line tagged with \TAGc. Is it possible to tell the
macro to process the whole line? (changing my source document is no option.)
    

Have a look at \dowithpargument. 
Thank you for this hint and your example. I see in the source browser that there is also an \dowithwargument, so I think I am looking for something like \dowithlargument (with l for line). Any idea's how to do that?

Jelle