No show on 1st day of work at new job after signing contract.
 

I have signed a 1 yr contract job with agency working at a Finance company in IT department.

The contract state if 'no show' on 1st day of work will need to pay 1 month penalty and if leave within 6 months on the contract will also got 1 month penalty to pay to the job agency.

After signing and tender my resignation to my boss, he counter-offer me and wants me to stay.... he even tells me not to worry about the penalty as normally agency will not do it.

Now I feel like staying and call the agency that I decided not to leave my present job for the new job.

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Just like to know if really will get penalty?
Should I wait until the day to report to work then call up the agency?

I think you should call up the agency to resolve this issue. Anyway the rule of thumb is not to accept a counter-offer especially if

1. you are working in a big company or
2. you are not so close to your boss or
3. if you have asked for a raise before but was rejected or
4. you consider yourself as a potential target for retrenchement in the current company if times are bad

Yup, never accept counter-offer. u will be the first to ask to go. also, all promotion plan for you will be shelved as there is no more trust in you and hence no point in grooming you. also, they would have come up with a new replacement plan in case you decide to throw the letter again.