Freelance income is other income or professional income?

Hi All,

I am a salaried employee in a private company. Apart from this i have earned around Rs.80 k for FY. 2010-2011 by providing freelance services. Should i show this income as income from other sources or should i show as profit or loss from  profession/business?

Should i inform my employer about this other income to include in Form 16 or can i show seperately in my tax return without connecting it to Form 16?

If i show this 80k as profit/gain from business or profession as a seperate head of income in Tax return, can i deduct expenses for earning this income (like salary paid to staff, depreciation on capital asset purchased, other expenses etc;).

Appreciate your valuable suggestions.