The Rupert Murdoch-owned tabloid was found to be in breach of press regulations over its report headlined "Queen backs Brexit" published on March 9, following which Buckingham Palace had complained to the Independent Press Standards Organisation (IPSO) as the British monarch is considered politically neutral.
IPSO said in its decision that while the article itself did not breach the code of practice, the headline did and the complaint was upheld under clause one of the code which refers to accuracy.
"It did not follow from the comments the article reported that the Queen wanted the UK to leave the EU as a result of the referendum: that suggestion was conjecture and was significantly misleading - given that it suggested a fundamental breach of the Queen's constitutional obligations," it added.
Tabloids like the 'Sun' have long made eye-catching assertions in headlines alongside a smaller headline to qualify or attribute them and it is a standard device.
"But IPSO decided it wasn't right - though it had no problem with the story beneath it, about Her Majesty's Eurosceptic remarks which two impeccable sources confirmed. We stand by all of it," 'The Sun' said.
"We made a judgement that the headline was right and that it was backed up by the story. You're asking me if I accept we made a mistake - in all conscience I don't," 'Sun' editor Tony Gallagher told the BBC.
One source was quoted by the newspaper as saying that they had witnessed a "bust-up" between Queen Elizabeth II and pro-EU former Deputy Prime Minister Nick Clegg in 2011, which it said left "no room for doubt about her passionate feelings over Europe".
Clegg had also called the story "nonsense" but 'The Sun' said it stood by its story.
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