I'm inclined to side with the Charity Commission in this matter except for one minor point. It isn't the Commission's job to define the law:
“This decision makes it clear that there is no presumption that religion generally, or at any more specific level, is for the public benefit, even in the case of Christianity or the Church of England. The case law on religion is rather ambiguous. Our view is that the definition is rather dated, and it is our job to define it adequately.”
If there is a case for removing charitable status from religion then that is a matter for Parliament not the Commission.