Not enough free space on OS X Base System while installing El Capitan with VirtualBox

I am getting an error while installing OS on Virtual Box machine, that there is not enough free space as shown in the image. I allocated 20GB while setting up virtual machine, and 8.8GB is what apple says that I need here

I went to disk Utility->Disk Utility of VirtualMachine and tried changing partitioning of the VM. It cant be done. It also shows the instructions I need to take, but the "Enable Journaling" command is greyed out. What could be the problem?

It also says I am using CD ROM media, but I am not. The El Capitan iso file, that was linked to VM in the Storage tab of setting up VM, is on Desktop.

These are the screenshots for better illustration.

By accident I tried to install OS X to the OS X Installer DVD iso file (mounted to the virtual VBOX CD-ROM device) itself.

Erasing/partitioning the VBOX HARDDISK disk (see images in question) and creating a new HFS+ Journaled formatted volume seems to work.

I erased the partition VBOX HARDDISK while naming it "UsableDisk" and rebooted the virtual machine.

This time I could see "UsableDisk" as an option on "Install OS X" screen as shown above. Choosing it to install the the OS X resolved the issue. Took around 15 minutes for install to complete.