The natural thing to do is calculate the age in years in a cte, then calculate teh age in months for cases where the age in years is 0. That's pretty straight forward:

with years(person,dob,age_y) as

(select person,

dob,

DATEDIFF(YEAR, dob, @SDate) -

CASE WHEN((MONTH(dob)*100 + DAY(dob)) > (MONTH(@SDate)*100 + DAY(@SDate)))

THEN 1

ELSE 0

END as age_y

FROM @people)

select person, dob,

case when age_y > 0

then LTRIM(STR(age_y)) + ' Yrs'

else LTRIM(STR(DATEDIFF(MM,dob,@SDate) -

case when DATEPART(DD,dob)>DATEPART(DD,@SDATE) then 1 else 0

end)) + ' Mths'

end as age

from years