From The Times, Monday, Feb 26, 1923; pg. 8
The Royal Automobile Club, after considering the request of the Junior Car Club for permission to hold a Tourist Trophy Race for light cars in the Isle of Man next July, has decided not to sanction such an event.
That would seem to imply that the RAC had by then already decided not to run a 1923 TT and that the JCC were seeking to salvage it as a more minor event.
Kelly records that the crowds had been poor and that reason, in combination with poor publicity, a small field and the bad weather during the 1922 race had more or less been the death knell, although Brigadier-General Holden of the RAC had initially held out the prospect of a 1923 event. The manufacturers, still rebuilding after war work, weren't keen and Kelly says that the SMMT opposed the JCC proposal, which he attributes to the Manx Motor Cycle Club, rather than the JCC, but perhaps they had enlisted the mainlanders' help, given that the MMCC wouldn't have been affiliated to the RAC. There was also opposition from the Lieutenant-Governor and from farming members of the Tynwald.
That's the short version. Chapter nine of Kelly's book is full of the politics of this, which had started during the build-up to the 1922 race. Much of the problem seems to stem from the RAC's reluctance to deal with the Manx MCC - who of course came under the authority of the Auto Cycle Union. In the long run though, this did lead to the establishment of the amateur version of the two-wheeled TT - aka the Manx GP.